Existing law regulates tax preparers and states that it is the intent of the provisions governing the regulation of tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for the California Tax Education Council (council) to register tax preparers and ensure that they meet all necessary requirements. Existing law, for the purposes of these provisions, defines client to mean an individual for whom a tax preparer performs or agrees to perform tax preparation services, and defines the council as a single nonprofit organization exempt from taxation and made up of representatives from specified entities. Existing law requires the council to issue a registration to any applicant who provides satisfactory evidence that he or she meets specified requirements and who complies with the rules established by the council. Existing law requires a tax preparer to provide to the customer in writing specified information prior to rendering any tax preparation services. Except as specified, a violation of these provisions is a crime. Existing law repeals these provisions on January 1, 2019.

The Bagley-Keene Open Meeting Act requires, with specified exceptions, that all meetings of a state body be open and public and all persons be permitted to attend.

This bill would name these provisions the Tax Preparation Act, and would require a tax preparer, on and after July 1, 2019, to report a paid claim against its surety bond to the council, which would be required to post a notice of the claim on its Internet Web site. The bill would extend the definition of client to the term customer. The bill would establish public protection as the councils highest priority in exercising its registration and disciplinary authority and other functions. The bill would make the meetings of the councils board of directors subject to the Bagley-Keene Open Meeting Act. The bill would require the council to establish and maintain on its Internet Web site a searchable public registry of registrants with specified information about each registrant. The bill would require a tax preparer to include the address of the councils Internet Web site in the information the tax preparer is required to provide to a customer before rendering services. The bill would direct the council to require an applicant, beginning July 1, 2020, to submit fingerprint images for submission to the Department of Justice, and would require the Department of Justice to compile and disseminate a fitness determination regarding the applicant based on the applicants criminal offender record information, as prescribed. The bill would require the Department of Justice and the council to charge a fee sufficient to cover the costs of processing the request for state- and federal-level criminal offender record information. The bill would include among the list of persons exempt from the act an employee supervised by a person who is exempt from the act, subject to specified conditions. The bill would extend the operation of the acts provisions to January 1, 2023. By extending the operation of these provisions, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law regulates tax preparers and states that it is the intent of the provisions governing the regulation of tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for the California Tax Education Council (council) to register tax preparers and ensure that they meet all necessary requirements. Existing law, for the purposes of these provisions, defines client to mean an individual for whom a tax preparer performs or agrees to perform tax preparation services, and defines the council as a single nonprofit organization exempt from taxation and made up of representatives from specified entities. Existing law requires the council to issue a registration to any applicant who provides satisfactory evidence that he or she meets specified requirements and who complies with the rules established by the council. Existing law requires a tax preparer to provide to the customer in writing specified information prior to rendering any tax preparation services. Except as specified, a violation of these provisions is a crime. Existing law repeals these provisions on January 1, 2019.

The Bagley-Keene Open Meeting Act requires, with specified exceptions, that all meetings of a state body be open and public and all persons be permitted to attend.

This bill would name these provisions the Tax Preparation Act, and would require a tax preparer, on and after July 1, 2019, to report a paid claim against its surety bond to the council, which would be required to post a notice of the claim on its Internet Web site. The bill would extend the definition of client to the term customer. The bill would establish public protection as the councils highest priority in exercising its registration and disciplinary authority and other functions. The bill would make the meetings of the councils board of directors subject to the Bagley-Keene Open Meeting Act. The bill would require the council to establish and maintain on its Internet Web site a searchable public registry of registrants with specified information about each registrant. The bill would require a tax preparer to include the address of the councils Internet Web site in the information the tax preparer is required to provide to a customer before rendering services. The bill would direct the council to require an applicant, beginning July 1, 2020, to submit fingerprint images for submission to the Department of Justice, and would require the Department of Justice to compile and disseminate a fitness determination regarding the applicant based on the applicants criminal offender record information, as prescribed. The bill would require the Department of Justice and the council to charge a fee sufficient to cover the costs of processing the request for state- and federal-level criminal offender record information. The bill would include among the list of persons exempt from the act an employee supervised by a person who is exempt from the act, subject to specified conditions. The bill would extend the operation of the acts provisions to January 1, 2023. By extending the operation of these provisions, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law regulates tax preparers and states that it is the intent of the provisions governing the regulation of tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for the California Tax Education Council (council) to register tax preparers and ensure that they meet all necessary requirements. Existing law, for the purposes of these provisions, defines client to mean an individual for whom a tax preparer performs or agrees to perform tax preparation services, and defines the council as a single nonprofit organization exempt from taxation and made up of representatives from specified entities. Existing law requires the council to issue a registration to any applicant who provides satisfactory evidence that he or she meets specified requirements and who complies with the rules established by the council. Existing law requires a tax preparer to provide to the customer in writing specified information prior to rendering any tax preparation services. Except as specified, a violation of these provisions is a crime. Existing law repeals these provisions on January 1, 2019.

The Bagley-Keene Open Meeting Act requires, with specified exceptions, that all meetings of a state body be open and public and all persons be permitted to attend.

This bill would name these provisions the Tax Preparation Act, and would require a tax preparer, on and after July 1, 2019, to report a paid claim against its surety bond to the council, which would be required to post a notice of the claim on its Internet Web site. The bill would extend the definition of client to the term customer. The bill would establish public protection as the councils highest priority in exercising its registration and disciplinary authority and other functions. The bill would make the meetings of the councils board of directors subject to the Bagley-Keene Open Meeting Act. The bill would require the council to establish and maintain on its Internet Web site a searchable public registry of registrants with specified information about each registrant. The bill would require a tax preparer to include the address of the councils Internet Web site in the information the tax preparer is required to provide to a customer before rendering services. The bill would direct the council to require an applicant, beginning July 1, 2020, to submit fingerprint images for submission to the Department of Justice, and would require the Department of Justice to compile and disseminate a fitness determination regarding the applicant based on the applicants criminal offender record information, as prescribed. The bill would require the Department of Justice and the council to charge a fee sufficient to cover the costs of processing the request for state- and federal-level criminal offender record information. The bill would include among the list of persons exempt from the act an employee supervised by a person who is exempt from the act, subject to specified conditions. The bill would extend the operation of the acts provisions to January 1, 2023. By extending the operation of these provisions, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law regulates tax preparers and states that it is the intent of the provisions governing the regulation of tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for the California Tax Education Council (council) to register tax preparers and ensure that they meet all necessary requirements. Existing law, for the purposes of these provisions, defines client to mean an individual for whom a tax preparer performs or agrees to perform tax preparation services, and defines the council as a single nonprofit organization exempt from taxation and made up of representatives from specified entities. Existing law requires the council to issue a registration to any applicant who provides satisfactory evidence that he or she meets specified requirements and who complies with the rules established by the council. Existing law requires a tax preparer to provide to the customer in writing specified information prior to rendering any tax preparation services. Except as specified, a violation of these provisions is a crime. Existing law repeals these provisions on January 1, 2019.

This bill would name these provisions the Tax Preparation Act, and would require a tax preparer, on and after July 1, 2019, to report a paid claim against its surety bond to the council, which would be required to post a notice of the claim on its Internet Web site. The bill would extend the definition of client to the term customer. The bill would establish public protection as the councils highest priority in exercising its registration and disciplinary authority and other functions. The bill would make the meetings of the councils board of directors subject to the Bagley-Keene Open Meeting Act. The bill would require the council to establish and maintain on its Internet Web site a searchable public registry of registrants with specified information about each registrant. The bill would require a tax preparer to include the address of the councils Internet Web site in the information the tax preparer is required to provide to a customer before rendering services. The bill would direct the council to require an applicant, beginning July 1, 2020, to submit fingerprint images for submission to the Department of Justice, and would require the Department of Justice to compile and disseminate a fitness determination regarding the applicant based on the applicants criminal offender record information, as prescribed. The bill would require the Department of Justice and the council to charge a fee sufficient to cover the costs of processing the request for state- and federal-level criminal offender record information. The bill would include among the list of persons exempt from the act an employee supervised by a person who is exempt from the act, subject to specified conditions. The bill would extend the operation of these the acts provisions to January 1, 2023. By extending the operation of these provisions, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law regulates tax preparers and states that it is the intent of the provisions governing the regulation of tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for the California Tax Education Council to register tax preparers and ensure that they meet all necessary requirements. Except as specified, a violation of these provisions is a crime. Existing law repeals these provisions on January 1, 2019.

This bill would extend the operation of these provisions to January 1, 2023. By extending the operation of these provisions, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

CONCURRENCE IN SENATE AMENDMENTS

CSA2 Bill Id:AB 3143

Author:(Low)

As Amended Ver:August 21, 2018

Majority vote

(B. & P.)

Original Committee Reference: B. & P.

SUMMARY: Extends the sunset date for the California Tax Education (CTEC), which registers paid tax preparers who are not otherwise authorized to provide tax services for compensation.

The Senate amendments added the following reforms to CTEC's regulation of tax preparers:

1. Renames CTEC's chapter as the Tax Preparation Act.
2. Requires CTEC registrants to report all paid claims against their surety bonds to CTEC, and requires CTEC to publish a list of registrants with paid claims on its website along with a list of all registrants who were subjected to formal discipline or placed on probation.
3. Codifies CTEC's existing searchable registry of CTEC-registered tax preparers (CRTPs).
4. Provides that meetings of CTEC's Board of Directors must comply with the transparency provisions of Bagley-Keene Open Meeting Act.
5. Authorizes CTEC to conduct its own state and federal criminal history checks and makes passage of a background check a requirements for new registrants.
6. Allows CTEC to contract with the Franchise Tax Board (FTB) to carry out enforcement activities.
7. Closes the potential loophole in provisions exempting from registration employees of other exempt preparers by requiring employers to supervise their employees and take responsibility for their work.

EXISTING LAW:

1. Establishes CTEC as a nongovernmental, nonprofit organization tasked with registering paid tax preparation professionals who are not otherwise exempt from its registration requirements. (Business and Professions Code Section (BPC) 22251)
2. States that it is the intent of the Legislature in establishing CTEC and its registration of paid tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of this chapter. (BPC 22251.1.)
3. Exempts enrolled agents, attorneys, certified public accountants, and employees of these licensees, as well as certain financial institutions, from CTEC's registration requirements. (BPC 22258)
4. Requires all CTEC-registered tax preparers to maintain a $5,000 surety bond. (BPC 22250)
5. Requires tax preparers registered with CTEC to complete a minimum of 60 hours of tax preparation education prior to registering, and requires an annual 20 hours of continuing education for active registrants. (BPC 22255)
6. Authorizes CTEC to discipline registrants by placing the registrant on probation, suspending the registration, revoking the registration, or other actions. (BPC 22253.3)

FISCAL EFFECT: According to the Senate Committee on Appropriations, $1.2 million one-time and $230,000 in costs to the Department of Justice to process new fingerprint background checks, which would be largely reimbursed by statutory fees charged to applicants.

COMMENTS:

Purpose. This bill is CTEC's sunset vehicle. This legislation provides an opportunity to implement recommendations arising out of the Legislature's sunset review process. Currently, this bill would simply extend the sunset date for CTEC until January 1, 2023.

Background. CTEC was established in 1997. Prior to CTEC's creation, tax preparers were fully licensed by the Tax Preparer Program within the Department of Consumer Affairs. In what was reportedly called a "grand experiment" by the Legislature, responsibility for overseeing tax preparers was shifted from the TPP to a newly established CTEC. While established in statute, CTEC is incorporated as a private 501(c)(3) and is not a government entity.

CTEC is not the only regulatory body that oversees paid preparers of tax returns. Certified public accountants, active attorneys, enrolled agents, and enrolled actuaries, as well as certain financial institutions and their employees, are all exempt from CTEC's requirements. These individuals are instead subject to their respective professional disciplinary standards for conduct and competence. CTEC serves as a catch-all entity for any other person "who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services." This encompasses both state and federal income tax preparation.

The requirements for an individual to become registered as a CRTP are relatively basic. First, an applicant must complete a total of 60 hours of education from a CTEC-approved provider. Applicants must obtain a Preparer Tax Identification Number from the federal Internal Revenue Service (IRS). Finally, all CRTPs must purchase and maintain a $5,000 tax preparer bond. Applicants for registration by CTEC are not fingerprinted and do not have to pass a criminal history background check by the Department of Justice (DOJ) as a condition of registration. CTEC does not verify personal information (e.g. social security number or personal tax identification number) provided by the applicant; however, CTEC does verify the required education that tax preparers must take from CTEC-approved providers. Approved providers must submit student course information electronically to CTEC.

As a nonprofit, nongovernmental regulatory entity, enforcement for CTEC is handled differently from most other regulatory entities under the Business and Professions Code. CTEC is not a client agency represented in litigation by the Attorney General and its enforcement cases are not typically handled through the DOJ. Statute requires tax preparers to furnish evidence of their surety bond "upon the request of any state, federal agency or any law enforcement agency," as well as CTEC. Statute also establishes a broad private right of action wherein "any person may maintain an action for enforcement of [duties required for registered tax preparers], or to recover a civil penalty in the amount of $1,000, or for both enforcement and recovery."

CTEC's enforcement priorities are not focused on disciplining existing registered tax preparers; instead, CTEC's principle goal is to identify and eliminate unlawful preparers who are not appropriately educated, bonded, and registered. Once an unlawful preparer has been identified, CTEC's goal is to allow that preparer 90 days to take the required education, purchase a bond, and register with CTEC. CTEC believes the combination of enforcement and education efforts deter unlawful activity.

The primary enforcement agency for CTEC is the FTB. Over the years since CTEC was established, the FTB's enforcement program has identified hundreds of unlawful preparers, provided them with information regarding CTEC requirements, and most individuals have come into compliance and become CRTPs. Without the enforcement arm of the FTB, CTEC believes there would be no reason for preparers to become registered. CTEC states that it considers its enforcement program to have been an overwhelming success. The FTB has taken steps to further enhance its enforcement process by using systems to improve verification of preparer information and correspondence prior to imposition of the failure to register as a tax preparer penalty.

Current process requires the FTB to verify, based on the information available that an unlawful tax preparer is not otherwise exempt from CTEC registration. When the FTB is unable to identify the individual or entity as exempt from registration, the FTB will send a first notice and a second notice before imposing the penalty to ensure that unlawful tax preparers can respond with their exempt information or comply with the registration requirement by registering with CTEC before the penalty will be imposed. The penalty for failing to register is $2,500 for the first failure and $5,000 for each subsequent failure. These penalties are deposited in the General Fund. The FTB expends time and resources to confirm tax preparer activity, confirming the identity of the tax preparers, and identification of exempt tax preparers.

Senate Bill 484 (Wyland) went into effect on January 1, 2014, giving CTEC the legislative authority to deregister preparers. The bill required CTEC to notify the FTB that a registration is suspended or revoked. As of the 2017/2018 season, the tax preparers that have been deregistered by CTEC will be pursued, if necessary, through the FTB's enforcement process. The bill also gave CTEC the authority to deny an application for registration or discipline a current registrant who has been convicted of a crime "substantially related to the qualifications, functions, or duties of a registrant."

Several issues were raised in CTEC's sunset review background paper. These issues may be considered for future reform to statutes governing CTEC's registration of paid tax preparers. These issues include:

1. Issue #1: Should enforcement penalties collected by the FTB be deposited in a manner that would allow CTEC to utilize revenue from fines to invest in further enforcement efforts against unregistered tax preparers?
2. Issue #2: Is the current structure of CTEC's Board of Directors problematic in the context of recent caselaw regarding liabilities for anticompetitive activity by regulatory bodies?
3. Issue #3: Does CTEC's nonprofit status render it inappropriately inapplicable to various laws aimed at increasing the transparency and accountability of entities conducting business on behalf of the public?
4. Issue #4: Should CTEC have the authority to request and receive criminal history information and subsequent arrest notification for registration applicants and active CRTPs?

Senate amendments to this bill seek to address some of the issues that arose during the sunset review process. Amendments were also taken in response to input from community advocates who expressed concerns that many CRTPs often engage in unscrupulous conduct and target the low-income and immigrant communities. Language in the bill would ensure that all CRTPs undergo a DOJ background check analogous to what other licensing entities require. The bill also increases the amount of information obtainable by a consumer regarding whether a CRTP has been subjected to discipline or has had to pay a claim against his or her bond. The bill would enable CTEC to partner with the FTB to increase its internal enforcement activities. Finally, the bill would require meetings of CTEC's Board of Directors to comply with the Bagley-Keene Open Meeting Act, extending public agency transparency laws to CTEC's regulatory capacity.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301 FN: 0005133

Date of Hearing: August 28, 2018

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

ABPCA Bill Id:AB 3143

Author:(Low) – As Amended Ver:August 21, 2018

Note: this bill was referred to this Committee pursuant to Assembly Rule 77.2. The Committee may recommend that the Assembly concur in the Senate amendments, recommend that the Assembly not concur in the Senate amendments, or hold the bill in the Committee.

SUBJECT: Tax preparers.

SUMMARY: Extends the sunset date for the California Tax Education (CTEC), which registers paid tax preparers who are not otherwise authorized to provide tax services for compensation.

THE SENATE AMENDMENTS: Make additional reforms to increase transparency and accountability in CTEC’s regulation of tax preparation.

EXISTING LAW:

1. Establishes CTEC as a nongovernmental, nonprofit organization tasked with registering paid tax preparation professionals who are not otherwise exempt from its registration requirements. (Business and Professions Code (BPC) § 22251)
2. States that it is the intent of the Legislature in establishing CTEC and its registration of paid tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of this chapter. (BPC § 22251.1.)
3. Exempts enrolled agents, attorneys, certified public accountants, and employees of these licensees, as well as certain financial institutions, from CTEC’s registration requirements. (BPC § 22258)
4. Requires all CTEC-registered tax preparers to maintain a $5,000 surety bond. (BPC § 22250)
5. Requires tax preparers registered with CTEC to complete a minimum of 60 hours of tax preparation education prior to registering, and requires an annual 20 hours of continuing education for active registrants. (BPC § 22255)
6. Authorizes CTEC to discipline registrants by placing the registrant on probation, suspending the registration, revoking the registration, or other actions. (BPC § 22253.3)

THIS BILL:

1. Extends the sunset date for CTEC from January 1, 2019 until January 1, 2023.
2. Renames CTEC’s chapter as the Tax Preparation Act.
3. Requires CTEC registrants to report all paid claims against their surety bonds to CTEC, and requires CTEC to publish a list of registrants with paid claims on its website along with a list of all registrants who were subjected to formal discipline or placed on probation.
4. Codifies CTEC’s existing searchable registry of CTEC-registered tax preparers (CRTPs).
5. Provides that meetings of CTEC’s Board of Directors must comply with the transparency provisions of Bagley-Keene Open Meeting Act.
6. Authorizes CTEC to conduct its own state and federal criminal history checks and makes passage of a background check a requirements for new registrants.
7. Allows CTEC to contract with the Franchise Tax Board (FTB) to carry out enforcement activities.
8. Closes the potential loophole in provisions exempting from registration employees of other exempt preparers by requiring employers to supervise their employees and take responsibility for their work.

FISCAL EFFECT: According to the Senate Committee on Appropriations, $1.2 million one-time and $230,000 in costs to the Department of Justice to process new fingerprint background checks, which would be largely reimbursed by statutory fees charged to applicants.

COMMENTS:

Purpose. This bill is CTEC’s sunset vehicle, which in addition to extending CTEC’s registration of paid tax preparers, implements recommendations arising out of the Legislature’s sunset review process. Amendments were also taken in response to input from community advocates who expressed concerns that many CRTPs often engage in unscrupulous conduct and target the low-income and immigrant communities. Language in the bill would ensure that all CRTPs undergo a DOJ background check analogous to what other licensing entities require. The bill also increases the amount of information obtainable by a consumer regarding whether a CRTP has been subjected to discipline or has had to pay a claim against his or her bond. The bill would enable CTEC to partner with the FTB to increase its internal enforcement activities. Finally, the bill would require meetings of CTEC’s Board of Directors to comply with the Bagley-Keene Open Meeting Act, extending public agency transparency laws to CTEC’s regulatory capacity.

Background. Overview of CTEC. The California Tax Education Council (CTEC) was established in 1997 by Senate Bill 1077 (Greene). Prior to CTEC’s creation, tax preparers were fully licensed by the Tax Preparer Program (TPP) within the Department of Consumer Affairs (DCA). In what was reportedly called a “grand experiment” by the Legislature, SB 1077 shifted responsibility for overseeing tax preparers from the TPP to a registration program under the newly established CTEC, which while established in statute is incorporated as a private 501(c)(3). Upon its creation, CTEC was not allocated any state funding and was not provided with any dedicated staff. The Legislature’s belief was that self-regulation by a nonprofit, nongovernmental entity would result in greater efficiency while still adequately protecting consumers.

CTEC is not the only regulatory body that oversees paid preparers of tax returns. Certified public accountants, active attorneys, enrolled agents, and enrolled actuaries, as well as certain financial institutions and their employees, are all exempt from CTEC’s requirements. These individuals are instead subject to their respective professional disciplinary standards for conduct and competence. CTEC serves as a catch-all entity for any other person “who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services.” This encompasses both state and federal income tax preparation.

After certified public accountants, CTEC Registered Tax Preparers (CRTPs) represent the second largest share of professionals engaged in paid tax preparation. As of June 2017, a total of 39,306 individuals were registered with CTEC. This number has remained relatively stable since CTEC last underwent sunset review in 2014. When CTEC was first created, a goal was established to obtain registration numbers approximating 38,000 to 48,000 preparers; registration numbers have consistently been within this range since 2005, though the number of registrants has been on a slight downward trend since 2014.

The requirements for an individual to become registered as a CRTP are relatively basic. First, an applicant must complete a total of 60 hours of education from a CTEC-approved provider—45 hours of federal tax education—15 hours of state tax education), covering basic personal income tax law, theory, and practice. (CTEC will accept two years of experience in alternatively authorized tax preparation experience in lieu of this education.) Once the applicant has completed their required education hours and passed a CTEC-approved final examination with a score of at least 70%, CTEC issues a Certificate of Completion. Registration with CTEC is required within 18 months of obtaining this certificate. Applicants must obtain a Preparer Tax Identification Number from the federal Internal Revenue Service (IRS). Finally, all CRTPs must purchase and maintain a $5,000 tax preparer bond.

CTEC is also charged with approving all providers of tax preparer education whose classes qualify for CRTP applicant Certificates of Completion and registrants’ continuing education requirements. Provider standards are set by a special CTEC committee, which also evaluates all schools seeking to become approved curriculum providers. CTEC must either approve or decline education provider applications within 120 days of receiving a request for approval, or the application is deemed approved. CTEC provides the list of approved providers to tax preparers and the public upon request.

Governance of CTEC. CTEC’s Board of Directors (Board) is comprised entirely of professional members. Six directors are CRTPs appointed by the Board. CRTPs are elected for two-year terms, and may be subsequently re-elected at the end of their term with no limits. Each director serves in a voluntary capacity. Currently, the Board has 14 directors, including 3 officers.

The remaining directors are associated with either a nonprofit tax preparer membership organization or a business engaged in tax preparation. Each professional society, association, or other entity operating as a California nonprofit corporation that has represented a membership of at least 400 tax preparers, enrolled agents, attorneys, or certified public accountants for the past three years may choose to appoint a maximum of one director to the Board. Similarly, a for-profit tax preparation corporation with at least 400 employees or franchisees (which can include the employees of a franchisee) that has been operating in California for the last three years may appoint a maximum of one director. These directors serve unlimited terms at the pleasure of their respective appointing authority. The following nonprofit organizations and for-profit corporations have representatives on the Board:

• California Society of Enrolled Agents (CSEA)
• California Society of Tax Consultants, Inc. (CSTC)
• H&R Block Tax Services, Inc.
• Jackson Hewitt Tax Service
• Liberty Tax Service
• National Association of Enrolled Agents (NAEA)
• National Association of Tax Professionals (NATP)
• National Society of Accountants (NSA)

Staff. CTEC does not have any employees. The program is administered through Advocation Strategies Inc., an outside firm that contracts with CTEC to provide staff support services for all of its functions. CTEC pays Advocation Strategies an administrative management fee, which is $45,750 per month under the current contract. This fee covers all staff support, office space, and all office equipment necessary to administer the program. Advocation Strategies has been the firm administering the program since CTEC’s inception in 1997. CTEC also contracts for the following services: curriculum review, advertising and public relations, audit, legal counsel, and IT services. CTEC additionally contracts with the Franchise Tax Board (FTB) for investigation and enforcement activities on its behalf.

Fiscal and Fund Analysis. As a private nonprofit, CTEC does not receive any General Fund support and does not submit Budget Change Proposals. The registration fees it collects go into a fund that is not part of the state budget and is not controlled by the Department of Finance. All enforcement penalties collected by the FTB from unlawful preparers go to the General Fund. CTEC’s administrative policies state that all approved budgets must be balanced, and all expenditures must be included in the Board-approved CTEC budget for the current fiscal year. CTEC’s annual revenues are primarily collected from registration fees during the months of September through December. CTEC’s fiscal year begins July 1, three months before the beginning of the revenue stream for the fiscal year. Therefore, three months annualized operating expenses must be funded from the prior year’s revenues and provided for in the prior year’s budget.

In addition, an operating reserve equal to two months annualized operating expenses is included in each current year budget. The combination requires budgeted reserves equal to two months annualized expenses. The reserve includes $50,000 restricted funds for possible legal action taken by the FTB against a non-compliant preparer. This reserve level is mandated by CTEC policy and is not set in statute. To fund the reserve, CTEC maintains certificates of deposit, which are reflected in the beginning balance of each fiscal year, reported for each of the past four years as follows:

• FY 2013/14: $400,000
• FY 2014/15: $250,000
• FY 2015/16: $400,000
• FY 2016/17: $650,000

CTEC’s renewal registration cycle begins on November 1 of each year through October 31 of the following year. The fee to register with CTEC is $33. The initial registration fee in 1997 was $25. It remained at $25 until it was increased beginning August 1, 2014 to $33. For those preparers who register late (after October 31), there is a late fee added to the $33.

The Board has periodically increased the fee for late registration in order to encourage timely compliance of the law by tax preparers. The initial late fee was $12.50. It was increased to $13, then $15. In November 2012 the late fee was increased to $55. For those registering late (the late registration period is from November 1 through January 15 of the following year), the total cost to renew their registration is $88. The increased late fee was initiated due to the large number of preparers renewing late.

Statute does not specify the fees CTEC can charge preparers, except that the fees must be related to the regulatory cost of providing services and carrying out CTEC’s responsibilities and duties and may not exceed the reasonable cost of the services or responsibilities.

Registration of Tax Preparers. Prior to 1997, the TPP provided for full licensure of tax preparers under the DCA. When CTEC took over responsibility for regulating tax preparation professionals, it replaced licensure with a registration program for those who meet the statute’s education and bonding requirements. At the time of the transfer, there were 28,831 registered preparers. Information received that first year from the FTB indicated that there were anywhere between 10,000 and 20,000 unlawfully unregulated preparers in California.

The expectation for CTEC was to reach registration numbers somewhere between 38,000 and 48,000. As of July 1, 2017, CTEC has 39,306 currently registered tax preparers. CTEC’s annual registration numbers for the last 12 years have been within CTEC’s initial goal of registering between 38,000 and 48,000 annual registrants. Moving forward, CTEC’s aim is to increase its current registration numbers and has begun working with the FTB to target unregistered preparers through what has been named the “Ghost Tax Preparer” program. This will be a major effort by CTEC’s Public Awareness and Governmental Relations Committees working with the FTB to identify Ghost Preparers (those individuals preparing returns and not signing them). Once identified, these individuals would be urged to register with CTEC or, if they continue preparing, would be cited and fined by the FTB. CTEC’s stated goal is not to have individuals fined, but rather to educate them regarding the law and bring them into compliance.

Since CTEC requires online registration, an application is processed immediately, including verification of education. It takes 4-6 weeks to send the appropriate certificate to the applicant; however, that applicant can begin preparing taxes once their application is completed online and they immediately receive a computer-generated verification that their registration has been successful. In comparison to paper applications, online registration has significantly reduced processing time. Paper applications are still accepted on a case-by-case basis but are rarely submitted. CTEC currently does not have a backlog of pending applications.

CTEC issues applicants for registration a Certificate of Completion once they have completed their 60-hour qualifying education course from a CTEC-approved provider. Final examinations are not administered by CTEC, and CTEC does not have a standardized test that must be used by providers. The examination process is left to the provider; however, the provider’s course, including the exam, must be reviewed and approved by CTEC. All CTEC-approved providers who offer qualifying education courses are required to have a final exam, and individuals taking the course must pass that exam with a grade of not less than 70%.

Applicants for registration by CTEC are not fingerprinted and do not have to pass a criminal history background check by the Department of Justice (DOJ) as a condition of registration. CTEC does not verify personal information (i.e. social security number or personal tax identification number) provided by the applicant; however, CTEC does verify the required education that tax preparers must take from CTEC-approved providers. Approved providers must submit student course information electronically to CTEC.

Education. To become a CTEC-approved provider, an applicant must submit a completed CTEC Curriculum Provider Application. The completed packet will go through an administrative review to be sure that all necessary components of the application have been provided. As part of the application, a digital copy of all course material will be provided and sent to a CTEC curriculum reviewer. The review includes a meticulous examination of a prospective provider’s course. CTEC has a review check list that includes the critical elements of a 60-hour course. If the provider’s course fails the review, they have the option to start over with their approval process or appeal the findings to the Board.

Once the review is complete, the reviewer will send to CTEC’s Curriculum Provider Standards Committee a recommendation of approval or a recommendation of denial. The committee will review the recommendation and will contact the applicant with their decision. A separate approval is required to be a qualifying education provider and a continuing education provider. The IRS has developed a national tax preparer program they have fashioned closely to the California program. The Director of Continuing Education Management for the IRS Return Preparer Office regularly attends the CTEC Board meetings. The IRS has also implemented a course review and approval process similar to CTEC’s, and has designated CTEC as an approved IRS Licensing Body. Any provider approved by CTEC is automatically approved as an IRS provider.

Recently, CTEC reviewed the new joint American Institute of Certified Public Accountants (AICPA) and National Association of State Boards of Accountancy (NASBA) education standards and the IRS education standards for their national registration program. The Board adopted the AICPA/NASBA approach to determining the continuing education awarded for self-study courses. The Board went farther than AICPA/NASBA standards and gave its curriculum review staff the latitude to deny approval of an education course under certain conditions.

CTEC approves continuing education providers by initially reviewing and approving one of their courses. The approved provider is then allowed to provide additional courses that have not been reviewed. Because of the hundreds of courses being taught, having the funds and staff to review every course is a long-standing problem not only for CTEC but also the IRS and NASBA.

CTEC verifies both qualifying and continuing education of every registered tax preparer every year. CTEC requires all approved providers to electronically report successful completion of both qualifying and continuing education courses to CTEC, and then matches those courses to individuals attempting to register online. CTEC does not allow self-certification of either qualifying or continuing education. Preparers are able to go into their personal online accounts and verify the number of education hours reported by their provider.

If an individual does not have the required continuing education credit for the year, CTEC will not renew the applicant’s registration, which is due on October 31 of each year, and the applicant can no longer engage in paid tax return preparation in California. If they do not make the October 31 deadline, they are given until January 15 of the following year to make up the education and pay a late fee to register. If they do not register by January 15, they would have to retake the 60-hour qualifying education course and register as a new preparer. There were no Continuing Education audits conducted in the last four years, since all continuing education courses are electronically verified for every applicant every year.

As an overview of the process outlined in the policies, CTEC contracts with a number of knowledgeable reviewers who verify the continuing education awarded by either a word count formula or pilot testing using standards very similar to those adopted by both AICPA and NASBA. This includes verifying an interactive element through the use of 3 review questions per continuing education hour at the end of each education element, and 5 exam questions per continuing education hour at the conclusion of the course.

The reviewers also look for and deny approval for courses whose material and questions are overly simplistic, and questions that are simply look-up questions with no educational value. The review team is headed up by a professional educator, Phillip Storrer, CPA. Mr. Storrer is a retired professor of taxation from Hayward University, Hayward, CA. CTEC also requires providers to undergo a course review every three years to renew their status as approved providers.

There are two types of continuing education provider applications: (1) New applications coming in from providers who are not currently approved by CTEC; and (2) Continuing education provider applications being submitted by approved providers who are up for periodic review (every three years an approved provider must resubmit a completed provider application, including course materials for review).

In an effort to ensure the quality of continuing education courses, in 2013 CTEC instituted a provider audit policy. This policy requires that the five most frequently taken courses be audited each year in addition to random audits and audits as the result of complaints. CTEC’s logic is that students will look for an easy way to get continuing education credits, and, by requiring the most frequently taken course, their review staff can uncover deficient courses. Audits are performed by members of the CTEC course review staff, who subscribe to the course just like any other student without the provider’s knowledge.

Enforcement. As a nonprofit, nongovernmental regulatory entity, enforcement for CTEC is handled differently from most other regulatory entities under the Business and Professions Code. CTEC is not a client agency represented in litigation by the Attorney General and its enforcement cases are not typically handled through the DOJ. Statute requires tax preparers to furnish evidence of their surety bond “upon the request of any state, federal agency or any law enforcement agency,” as well as CTEC. Statute also establishes a broad private right of action wherein “any person may maintain an action for enforcement of [duties required for registered tax preparers], or to recover a civil penalty in the amount of one thousand dollars, or for both enforcement and recovery.”

CTEC’s enforcement priorities are not focused on disciplining existing registered tax preparers; instead, CTEC’s principle goal is to identify and eliminate unlawful preparers who are not appropriately educated, bonded, and registered. Once an unlawful preparer has been identified, CTEC’s goal is to allow that preparer 90 days to take the required education, purchase a bond, and register with CTEC. CTEC believes the combination of enforcement and education efforts deter unlawful activity.

The primary enforcement agency for CTEC is the FTB. Over the years since CTEC was established, the FTB’s enforcement program has identified hundreds of unlawful preparers, provided them with information regarding CTEC requirements, and most individuals have come into compliance and become CRTPs. Without the enforcement arm of the FTB, CTEC believes there would be no reason for preparers to become registered. CTEC states that it considers its enforcement program to have been an overwhelming success. The FTB has taken steps to further enhance its enforcement process by using systems to improve verification of preparer information and correspondence prior to imposition of the failure to register as a tax preparer penalty. The process has shown an increase in failure to register penalties imposed with an 85% increase since the 2012/13 season.

Current process requires the FTB to verify, based on the information available that an unlawful tax preparer is not otherwise exempt from CTEC registration as an attorney, CPA, EA, or other exempt entity. When the FTB is unable to identify the individual or entity as exempt from registration, the FTB will send a first notice and a second notice before imposing the penalty to ensure that unlawful tax preparers can respond with their exempt information or comply with the registration requirement by registering with CTEC before the penalty will be imposed. The penalty for failing to register is $2,500 for the first failure and $5,000 for each subsequent failure. These penalties are deposited in the General Fund. The FTB expends time and resources to confirm tax preparer activity, confirming the identity of the tax preparers, and identification of exempt tax preparers.

Senate Bill 484 (Wyland) went into effect on January 1, 2014, giving CTEC the legislative authority to deregister preparers. The bill required CTEC to notify the FTB that a registration is suspended or revoked. As of the 2017/2018 season, the tax preparers that have been deregistered by CTEC will be pursued, if necessary, through the FTB’s enforcement process. The bill also gave CTEC the authority to deny an application for registration or discipline a current registrant who has been convicted of a crime “substantially related to the qualifications, functions, or duties of a registrant.”

Several issues were raised in CTEC’s sunset review background paper. These issues may be considered for future reform to statutes governing CTEC’s registration of paid tax preparers. These issues include:

• Issue #1: Should enforcement penalties collected by the FTB be deposited in a manner that would allow CTEC to utilize revenue from fines to invest in further enforcement efforts against unregistered tax preparers?
• Issue #2: Is the current structure of CTEC’s Board of Directors problematic in the context of recent caselaw regarding liabilities for anticompetitive activity by regulatory bodies?
• Issue #3: Does CTEC’s nonprofit status render it inappropriately inapplicable to various laws aimed at increasing the transparency and accountability of entities conducting business on behalf of the public?
• Issue #4: Should CTEC have the authority to request and receive criminal history information and subsequent arrest notification for registration applicants and active CRTPs?

Current Related Legislation. AB 3141 (Low) is the sunset vehicle for the Bureau of Automotive Repair. This bill is pending on the Assembly Floor.

AB 3142 (Low) is the sunset vehicle for the California Acupuncture Board. This bill is pending on the Assembly Floor.

AB 3144 (Low) is the sunset vehicle for the Professional Fiduciaries Bureau. This bill is also pending in this committee.

Prior Related Legislation. SB 1243 (Lieu, Chapter 395, Statutes of 2014) extended the sunset date for CTEC from January 1, 2015 to January 1, 2019.

SB 484 (Wyland, Chapter 660, Statutes of 2013) revised the composition of CTEC, authorized CTEC to deny, suspend, or revoke a tax preparer registration for specified violations, and made other related changes to the Tax Preparers Law.

ARGUMENTS IN SUPPORT:

The California Society of Enrolled Agenda (CSEA) supports the bill. Enrolled Agents represented by CSEA are generally exempt from CTEC’s registration requirements, and CSEA points out that “as an active part of California’s tax ecosystem, CSEA has a seat on the CTEC Advisory Council.” CSEA states that it supports CTEC’s mission, and that “CTEC provides a valuable consumer protection, ensuring that tax preparers who are not federally-licensed meet a minimum level of training.”

United Ways of California (UWCA) has a support position on the bill. UWCA initially requested that a number of recommended reforms to CTEC be incorporated into the bill governing how CTEC-registered tax preparers interact with consumers, many of which were adopted in the Senate. UWCA states that these amendments would “help protect low-income filers from fraudulent or predatory practices.” UWCA believes that “the FTB should have the enforcement power to address misconduct regarding actual tax preparation” and not merely enforce the state’s registration requirement generally.

ARGUMENTS IN OPPOSITION:

None on file.

REGISTERED SUPPORT:

California Society of Enrolled Agents
United Ways of California

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 3143

Author:(Low)

As Amended Ver:August 21, 2018

Majority vote

Original Committee Reference: B. & P.

SUMMARY: Extends the sunset date for the California Tax Education (CTEC), which registers paid tax preparers who are not otherwise authorized to provide tax services for compensation.

The Senate amendments added the following reforms to CTEC's regulation of tax preparers:

1. Renames CTEC's chapter as the Tax Preparation Act.
2. Requires CTEC registrants to report all paid claims against their surety bonds to CTEC, and requires CTEC to publish a list of registrants with paid claims on its website along with a list of all registrants who were subjected to formal discipline or placed on probation.
3. Codifies CTEC's existing searchable registry of CTEC-registered tax preparers (CRTPs).
4. Provides that meetings of CTEC's Board of Directors must comply with the transparency provisions of Bagley-Keene Open Meeting Act.
5. Authorizes CTEC to conduct its own state and federal criminal history checks and makes passage of a background check a requirements for new registrants.
6. Allows CTEC to contract with the Franchise Tax Board (FTB) to carry out enforcement activities.
7. Closes the potential loophole in provisions exempting from registration employees of other exempt preparers by requiring employers to supervise their employees and take responsibility for their work.

EXISTING LAW:

1. Establishes CTEC as a nongovernmental, nonprofit organization tasked with registering paid tax preparation professionals who are not otherwise exempt from its registration requirements. (Business and Professions Code Section (BPC) 22251)
2. States that it is the intent of the Legislature in establishing CTEC and its registration of paid tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of this chapter. (BPC 22251.1.)
3. Exempts enrolled agents, attorneys, certified public accountants, and employees of these licensees, as well as certain financial institutions, from CTEC's registration requirements. (BPC 22258)
4. Requires all CTEC-registered tax preparers to maintain a $5,000 surety bond. (BPC 22250)
5. Requires tax preparers registered with CTEC to complete a minimum of 60 hours of tax preparation education prior to registering, and requires an annual 20 hours of continuing education for active registrants. (BPC 22255)
6. Authorizes CTEC to discipline registrants by placing the registrant on probation, suspending the registration, revoking the registration, or other actions. (BPC 22253.3)

FISCAL EFFECT: According to the Senate Committee on Appropriations, $1.2 million one-time and $230,000 in costs to the Department of Justice to process new fingerprint background checks, which would be largely reimbursed by statutory fees charged to applicants.

COMMENTS:

Purpose. This bill is CTEC's sunset vehicle. This legislation provides an opportunity to implement recommendations arising out of the Legislature's sunset review process. Currently, this bill would simply extend the sunset date for CTEC until January 1, 2023.

Background. CTEC was established in 1997. Prior to CTEC's creation, tax preparers were fully licensed by the Tax Preparer Program within the Department of Consumer Affairs. In what was reportedly called a "grand experiment" by the Legislature, responsibility for overseeing tax preparers was shifted from the TPP to a newly established CTEC. While established in statute, CTEC is incorporated as a private 501(c)(3) and is not a government entity.

CTEC is not the only regulatory body that oversees paid preparers of tax returns. Certified public accountants, active attorneys, enrolled agents, and enrolled actuaries, as well as certain financial institutions and their employees, are all exempt from CTEC's requirements. These individuals are instead subject to their respective professional disciplinary standards for conduct and competence. CTEC serves as a catch-all entity for any other person "who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services." This encompasses both state and federal income tax preparation.

The requirements for an individual to become registered as a CRTP are relatively basic. First, an applicant must complete a total of 60 hours of education from a CTEC-approved provider. Applicants must obtain a Preparer Tax Identification Number from the federal Internal Revenue Service (IRS). Finally, all CRTPs must purchase and maintain a $5,000 tax preparer bond. Applicants for registration by CTEC are not fingerprinted and do not have to pass a criminal history background check by the Department of Justice (DOJ) as a condition of registration. CTEC does not verify personal information (e.g. social security number or personal tax identification number) provided by the applicant; however, CTEC does verify the required education that tax preparers must take from CTEC-approved providers. Approved providers must submit student course information electronically to CTEC.

As a nonprofit, nongovernmental regulatory entity, enforcement for CTEC is handled differently from most other regulatory entities under the Business and Professions Code. CTEC is not a client agency represented in litigation by the Attorney General and its enforcement cases are not typically handled through the DOJ. Statute requires tax preparers to furnish evidence of their surety bond "upon the request of any state, federal agency or any law enforcement agency," as well as CTEC. Statute also establishes a broad private right of action wherein "any person may maintain an action for enforcement of [duties required for registered tax preparers], or to recover a civil penalty in the amount of one thousand dollars, or for both enforcement and recovery."

CTEC's enforcement priorities are not focused on disciplining existing registered tax preparers; instead, CTEC's principle goal is to identify and eliminate unlawful preparers who are not appropriately educated, bonded, and registered. Once an unlawful preparer has been identified, CTEC's goal is to allow that preparer 90 days to take the required education, purchase a bond, and register with CTEC. CTEC believes the combination of enforcement and education efforts deter unlawful activity.

The primary enforcement agency for CTEC is the FTB. Over the years since CTEC was established, the FTB's enforcement program has identified hundreds of unlawful preparers, provided them with information regarding CTEC requirements, and most individuals have come into compliance and become CRTPs. Without the enforcement arm of the FTB, CTEC believes there would be no reason for preparers to become registered. CTEC states that it considers its enforcement program to have been an overwhelming success. The FTB has taken steps to further enhance its enforcement process by using systems to improve verification of preparer information and correspondence prior to imposition of the failure to register as a tax preparer penalty.

Current process requires the FTB to verify, based on the information available that an unlawful tax preparer is not otherwise exempt from CTEC registration. When the FTB is unable to identify the individual or entity as exempt from registration, the FTB will send a first notice and a second notice before imposing the penalty to ensure that unlawful tax preparers can respond with their exempt information or comply with the registration requirement by registering with CTEC before the penalty will be imposed. The penalty for failing to register is $2,500 for the first failure and $5,000 for each subsequent failure. These penalties are deposited in the General Fund. The FTB expends time and resources to confirm tax preparer activity, confirming the identity of the tax preparers, and identification of exempt tax preparers.

Senate Bill 484 (Wyland) went into effect on January 1, 2014, giving CTEC the legislative authority to deregister preparers. The bill required CTEC to notify the FTB that a registration is suspended or revoked. As of the 2017/2018 season, the tax preparers that have been deregistered by CTEC will be pursued, if necessary, through the FTB's enforcement process. The bill also gave CTEC the authority to deny an application for registration or discipline a current registrant who has been convicted of a crime "substantially related to the qualifications, functions, or duties of a registrant."

Several issues were raised in CTEC's sunset review background paper. These issues may be considered for future reform to statutes governing CTEC's registration of paid tax preparers. These issues include:

1. Issue #1: Should enforcement penalties collected by the FTB be deposited in a manner that would allow CTEC to utilize revenue from fines to invest in further enforcement efforts against unregistered tax preparers?
2. Issue #2: Is the current structure of CTEC's Board of Directors problematic in the context of recent caselaw regarding liabilities for anticompetitive activity by regulatory bodies?
3. Issue #3: Does CTEC's nonprofit status render it inappropriately inapplicable to various laws aimed at increasing the transparency and accountability of entities conducting business on behalf of the public?
4. Issue #4: Should CTEC have the authority to request and receive criminal history information and subsequent arrest notification for registration applicants and active CRTPs?

Senate amendments to this bill seek to address some of the issues that arose during the sunset review process. Amendments were also taken in response to input from community advocates who expressed concerns that many CRTPs often engage in unscrupulous conduct and target the low-income and immigrant communities. Language in the bill would ensure that all CRTPs undergo a DOJ background check analogous to what other licensing entities require. The bill also increases the amount of information obtainable by a consumer regarding whether a CRTP has been subjected to discipline or has had to pay a claim against his or her bond. This bill would enable CTEC to partner with the FTB to increase its internal enforcement activities. Finally, the bill would require meetings of CTEC's Board of Directors to comply with the Bagley-Keene Open Meeting Act, extending public agency transparency laws to CTEC's regulatory capacity.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301 FN: 0004976

 THIRD READING  

Bill No: AB 3143

Author: , et al.

: 8/21/18

Vote:

SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 6/25/18

AYES: Hill, Allen, Dodd, Galgiani, Glazer, Hernandez, Pan, Wilk

NO VOTE RECORDED: Fuller

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/16/18

AYES: Portantino, Bates, Beall, Bradford, Hill, Nielsen, Wiener

ASSEMBLY FLOOR: 73-0, 5/17/18 (Consent) - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill retitles the Tax Preparer Law as the “Tax Preparation Act.” This bill recasts, rewrites, clarifies and revises certain provisions of the Tax Preparer Law which provides for the registration of tax preparers by the California Tax Education Council (CTEC) and adds other specified requirements to include compliance with Bagley-Keene Open Meeting Act; requires the CTEC establish and maintain on its Internet Web site a searchable public registry of tax preparers registered by CTEC and provide other information as specified; and requires, beginning July 1, 2020, as a condition of registration, that an applicant to register with CTEC must submit fingerprint images so that CTEC may receive criminal offender record information and subsequent arrest notification.

Senate Floor Amendments of 8/21/18 add a co-author and make a technical change.

ANALYSIS:

Existing law:

1. Provides for the registration of tax preparers by CTEC) and repeals (sunsets) those provisions of law effective January 1, 2019. (BPC § 22250 et. seq.)
2. Requires all CTEC-registered tax preparers to maintain a $5,000 surety bond. (BPC § 22250)
3. Defines a “tax preparer" as a person who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services. (BPC § 22251 (a))
   
4. Defines a “tax preparer” to also mean a corporation, partnership, association, or other entity that has persons associated with it who have as part of their responsibilities the preparation of data and ultimate signatory authority of tax returns or that holds itself out as offering those services or having that authority. (Id.)
   
5. Specifies that a “tax preparer” does not include an employee who, as part of the regular clerical duties of employment, prepares his or her employer’s income, sales or payroll tax returns. (Id.)
   
6. Defines “council” as the California Tax Education Council that is a single nonprofit organization exempt from taxation under Section 501(c)(3) of the U.S. Tax Code and provides for the composition of CTEC as specified.
   (BPC § 22251 (d))
   
7. States that it is the intent of the Legislature in establishing CTEC and its registration of paid tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of this chapter. (BPC § 22251.1.)
8. Provides that the CTEC shall have responsibilities and duties as specified; shall issue registrations, deny applications and discipline registrants as authorized and may adopt bylaws, rules, regulations; and procedures necessary to effectuate the purposes of the Tax Preparer law. (BPC § 22251.2)
9. Requires that prior to rendering any tax preparation services, a tax preparer shall provide the customer in writing with the tax preparer’s name, address, telephone number, and evidence of compliance with the bonding requirement, including the bond number, if any. (BPC § 22252)
10. Makes it a violation of the Tax Preparer Law for a tax preparer to do or commit, and the CTEC may deny an application for registration or discipline a registrant for any of the specified violations. (BPC §§ 22253 and 22253.1.5)
11. Provides that CTEC may enter into an agreement with the Franchise Tax Board (FTB) to provide reimbursement to the FTB for any expenses incurred to identify an individual who is not in compliance with the Tax Preparer Law. (BPC § 22253.2)
12. Authorizes CTEC to discipline registrants by placing the registrant on probation, suspending the registration, revoking the registration, or other actions. (BPC § 22253.3)
13. Requires CTEC to issue a “certificate of completion” when a tax preparer demonstrates completion of not less than 60 hours of specified educational requirements, and requires an annual 20 hours of continuing education for active registrants. (BPC § 22255)
    
14. Exempts enrolled agents, attorneys, certified public accountants, and employees of these licensees, as well as certain financial institutions, from CTEC’s registration requirements. (BPC § 22258)

This bill:

1. Specifies that the Tax Preparer Law shall be known and be cited as the Tax Preparation Act (Act) and extends the operation of the Act’s provisions to January 1, 2023.
   
2. Requires that on or after July 1, 2019, a tax preparer shall report a paid claim against its surety bond to CTEC, which shall post a notice of the claim on its Internet Web site.
   
3. Specifies the protection of the public shall be the highest priority for CTEC in exercising its registration and disciplinary authority, and any other functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount.
   
4. Provides that the meetings of CTEC shall be subject to the Bagley-Keene Open Meeting Act (Bagley-Keene Act) and that the board of directors of CTEC may adopt additional policies and procedures that provide greater transparency to registrants and the public than required by the Bagley-Keene Act.
   
5. Requires CTEC to establish and maintain on its Internet Web site a searchable public registry of tax preparers registered by CTEC and requires that each registrant’s listing shall clearly indicate whether the registrant is actively in compliance with the annual registration requirements and shall include any of the following information that is applicable to the registrant:
   
   1. The registrant’s name and mailing address;
      
   2. The registrant’s CTEC registration number; and
      
   3. Any other information CTEC believes would be beneficial to consumers of tax preparation services.
      
6. Requires the public registry to also contain direct links to the Internet Web sites maintained by the California Board of Accountancy, the State Bar of California, and the Internal Revenue Service where public information regarding tax preparers exempt from the Tax Preparer Law may be obtained.
   
7. Requires that prior to rendering any tax preparation services, a tax prepare shall provide the customer in writing with the following:
   
   1. The tax preparer’s name, address, telephone number.
      
   2. Evidence of compliance with the boding requirement, including the bond number, if any.
      
   3. The address of CTEC’s Internet Web site.
      
8. Provides that CTEC may enter into an agreement with the FTB to provide reimbursement to the FTB for assistance in carrying out enforcement activities consistent with the Tax Preparer Law.
   
9. Requires CTEC, beginning July 1, 2019, to post the following on its Internet Web site:
   
   1. All disciplinary actions taken against registrants by CTEC, including but not limited to misconduct that resulted in a suspension or revocation.
      
   2. A list of registrants on probation, including the misconduct that resulted in the probation along with any terms placed on the probation.
      
10. Requires beginning July 1, 2020, as a condition of registration, that CTEC shall require the applicant to submit fingerprint images as directed by CTEC and in a form consistent the requirements of receiving fingerprint images and criminal offender record information and subsequent arrest notification, as specified.
11. Provides that any employee of any person who is exempt from the Tax Preparer Law shall also be exempt as long as they are functioning within the scope of that employment and that the employee is supervised by a person exempt, as specified who reviews the return, signs it, and is responsible for its content.

Background

Overview of CTEC. The California Tax Education Council (CTEC) was established in 1997 by Senate Bill 1077 (Greene). Prior to CTEC’s creation, tax preparers were fully licensed by the Tax Preparer Program (TPP) within the Department of Consumer Affairs (DCA). In what was reportedly called a “grand experiment” by the Legislature, SB 1077 shifted responsibility for overseeing tax preparers from the TPP to a registration program under the newly established CTEC, which while established in statute is incorporated as a private 501(c)(3). Upon its creation, CTEC was not allocated any state funding and was not provided with any dedicated staff. The Legislature’s belief was that self-regulation by a nonprofit, nongovernmental entity would result in greater efficiency while still adequately protecting consumers.

CTEC is not the only regulatory body that oversees paid preparers of tax returns. Certified public accountants, active attorneys, enrolled agents, and enrolled actuaries, as well as certain financial institutions and their employees, are all exempt from CTEC’s requirements. These individuals are instead subject to their respective professional disciplinary standards for conduct and competence. CTEC serves as a catch-all entity for any other person “who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services.” This encompasses both state and federal income tax preparation.

After certified public accountants, CTEC Registered Tax Preparers (CRTPs) represent the second largest share of professionals engaged in paid tax preparation. As of June 2017, a total of 39,306 individuals were registered with CTEC. This number has remained relatively stable since CTEC last underwent sunset review in 2014. When CTEC was first created, a goal was established to obtain registration numbers approximating 38,000 to 48,000 preparers; registration numbers have consistently been within this range since 2005, though the number of registrants has been on a slight downward trend since 2014.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee analysis dated June 21, 2018:

• $208,000 (Fingerprint Fees Account) in FY 2019-20, $1.2 million (Fingerprint Fees Account) in FY 2020-21, and $230,000 ongoing for the DOJ’s increased administrative workload to process fingerprint images, and to compile and disseminate a fitness determination regarding the applicant based on the applicants criminal offender record information. DOJ anticipates staffing resources of 4.0 limited-term program technicians in FY 2019-20 and FY 2020-21, 1.0 permanent program technical in FY 2020-21, and 1.0 limited-term criminal identification specialists.
• The DOJ estimates revenue increases of $1,960,000 in FY 2020-21, and $392,000 in FY 2021-22 and ongoing, to the Fingerprint Fees Account as a result of the increase in fingerprint submissions. 
• As a private nonprofit, CTEC does not receive any General Fund support and does not submit Budget Change Proposals. The registration fees it collects go into a fund that is not part of the state budget and is not controlled by the Department of Finance. All enforcement penalties collected by the Franchise Tax Board from unlawful preparers go to the General Fund. CTEC’s annual revenues are primarily collected from registration fees during the months of September through December.

SUPPORT: (Verified 8/21/18)

California Society of Enrolled Agents
Prosperity Now
United Ways of California

OPPOSITION: (Verified 8/21/18)

None received

ARGUMENTS IN SUPPORT: The California Society of Enrolled Agents write in support of this measure and write that: “CTEC provides a valuable consumer protection, ensuring that tax preparers who are not federally-licensed meet a minimum level of training. As an active part of California’s tax ecosystem, CSEA has a seat on the CTEC Advisory Council and we support their mission.”

United Ways of California and Prosperity Now also write in support of this measure as it was amended June 21, 2018. They indicate that “This legislation is a crucial step towards ensuring tax preparers are held responsible for the accuracy of their returns and potential fraud. Tax preparer fraud and incompetency has enormous impacts on both taxpayers and state revenue; unfortunately, studies demonstrate that such fraud and incompetency is commonplace. Without clear standards for preparers and adequate enforcement activities, tax filers are at a severe disadvantage in selecting trustworthy tax preparation services.” They both believe that the changes made in this legislation will address some of the remaining deficiencies in the law and protect consumers who need these necessary tax preparation services, especially in the communities they serve.

ASSEMBLY FLOOR: 73-0, 5/17/18

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Cristina Garcia, Melendez, Muratsuchi, Santiago, Steinorth

Prepared by: 916-651-4104

8/22/18 14:39:15

**** END ****

 THIRD READING  

Bill No: AB 3143

Author:

:

Vote:

SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 6/25/18

AYES: Hill, Allen, Dodd, Galgiani, Glazer, Hernandez, Pan, Wilk

NO VOTE RECORDED: Fuller

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/16/18

AYES: Portantino, Bates, Beall, Bradford, Hill, Nielsen, Wiener

ASSEMBLY FLOOR: 73-0, 5/17/18 (Consent) - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill retitles the Tax Preparer Law as the “Tax Preparation Act.” This bill recasts, rewrites, clarifies and revises certain provisions of the Tax Preparer Law which provides for the registration of tax preparers by the California Tax Education Council (CTEC) and adds other specified requirements to include compliance with Bagley-Keene Open Meeting Act; establish and maintain on its Internet Web site a searchable public registry of tax preparers registered by CTEC and provide other information as specified; beginning July 1, 2020, as a condition of registration, that an applicant to register with CTEC must submit fingerprint images so that CTEC may receive criminal offender record information and subsequent arrest notification.

ANALYSIS:

Existing law:

1. Provides for the registration of tax preparers by CTEC) and repeals (sunsets) those provisions of law effective January 1, 2019. (BPC § 22250 et. seq.)
2. Requires all CTEC-registered tax preparers to maintain a $5,000 surety bond. (BPC § 22250)
3. Defines a “tax preparer" as a person who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services. (BPC § 22251 (a))
   
4. Defines a “tax preparer” to also mean a corporation, partnership, association, or other entity that has persons associated with it who have as part of their responsibilities the preparation of data and ultimate signatory authority of tax returns or that holds itself out as offering those services or having that authority. (Id.)
   
5. Specifies that a “tax preparer” does not include an employee who, as part of the regular clerical duties of employment, prepares his or her employer’s income, sales or payroll tax returns. (Id.)
   
6. Defines “council” as the California Tax Education Council that is a single nonprofit organization exempt from taxation under Section 501(c)(3) of the U.S. Tax Code and provides for the composition of CTEC as specified.
   (BPC § 22251 (d))
   
7. States that it is the intent of the Legislature in establishing CTEC and its registration of paid tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of this chapter. (BPC § 22251.1.)
8. Provides that the CTEC shall have responsibilities and duties as specified; shall issue registrations, deny applications and discipline registrants as authorized and may adopt bylaws, rules, regulations; and procedures necessary to effectuate the purposes of the Tax Preparer law. (BPC § 22251.2)
9. Requires that prior to rendering any tax preparation services, a tax preparer shall provide the customer in writing with the tax preparer’s name, address, telephone number, and evidence of compliance with the bonding requirement, including the bond number, if any. (BPC § 22252)
10. Makes it a violation of the Tax Preparer Law for a tax preparer to do or commit, and the CTEC may deny an application for registration or discipline a registrant for any of the specified violations. (BPC §§ 22253 and 22253.1.5)
11. Provides that CTEC may enter into an agreement with the Franchise Tax Board (FTB) to provide reimbursement to the FTB for any expenses incurred to identify an individual who is not in compliance with the Tax Preparer Law. (BPC § 22253.2)
12. Authorizes CTEC to discipline registrants by placing the registrant on probation, suspending the registration, revoking the registration, or other actions. (BPC § 22253.3)
13. Requires CTEC to issue a “certificate of completion” when a tax preparer demonstrates completion of not less than 60 hours of specified educational requirements, and requires an annual 20 hours of continuing education for active registrants. (BPC § 22255)
    
14. Exempts enrolled agents, attorneys, certified public accountants, and employees of these licensees, as well as certain financial institutions, from CTEC’s registration requirements. (BPC § 22258)

This bill:

1. Specifies that the Tax Preparer law shall be known and be cited as the Tax Preparation Act.
   
2. Requires that on or after July 1, 2019, a tax preparer shall report a paid claim against its surety bond to CTEC, which shall post a notice of the claim on its Internet Web site.
   
3. Specifies the protection of the public shall be the highest priority for CTEC in exercising its registration and disciplinary authority, and any other functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount.
   
4. Provides that the meetings of CTEC shall be subject to the Bagley-Keene Open Meeting Act (Bagley-Keene Act) and that the board of directors of CTEC may adopt additional policies and procedures that provide greater transparency to registrants and the public than required by the Bagley-Keene Act.
   
5. Requires CTEC to establish and maintain on its Internet Web site a searchable public registry of tax preparers registered by CTEC and requires that each registrant’s listing shall clearly indicate whether the registrant is actively in compliance with the annual registration requirements and shall include any of the following information that is applicable to the registrant:
   
   1. The registrant’s name and mailing address;
      
   2. The registrant’s CTEC registration number; and
      
   3. Any other information CTEC believes would be beneficial to consumers of tax preparation services.
      
6. Requires the public registry to also contain direct links to the Internet Web sites maintained by the California Board of Accountancy, the State Bar of California, and the Internal Revenue Service where public information regarding tax preparers exempt from the Tax Preparer Law may be obtained.
   
7. Requires that prior to rendering any tax preparation services, a tax prepare shall provide the customer in writing with the following:
   
   1. The tax preparer’s name, address, telephone number.
      
   2. Evidence of compliance with the boding requirement, including the bond number, if any.
      
   3. The address of CTEC’s Internet Web site.
      
8. Provides that CTEC may enter into an agreement with the FTB to provide reimbursement to the FTB for assistance in carrying out enforcement activities consistent with the Tax Preparer Law.
   
9. Requires CTEC, beginning July 1, 2019, to post the following on its Internet Web site:
   
   1. All disciplinary actions taken against registrants by CTEC, including but not limited to misconduct that resulted in a suspension or revocation.
      
   2. A list of registrants on probation, including the misconduct that resulted in the probation along with any terms placed on the probation.
      
10. Requires beginning July 1, 2020, as a condition of registration, that CTEC shall require the applicant to submit fingerprint images as directed by CTEC and in a form consistent the requirements of receiving fingerprint images and criminal offender record information and subsequent arrest notification, as specified.
11. Provides that any employee of any person who is exempt from the Tax Preparer Law shall also be exempt as long as they are functioning within the scope of that employment and that the employee is supervised by a person exempt, as specified who reviews the return, signs it, and is responsible for its content.

Background

Overview of CTEC. The California Tax Education Council (CTEC) was established in 1997 by Senate Bill 1077 (Greene). Prior to CTEC’s creation, tax preparers were fully licensed by the Tax Preparer Program (TPP) within the Department of Consumer Affairs (DCA). In what was reportedly called a “grand experiment” by the Legislature, SB 1077 shifted responsibility for overseeing tax preparers from the TPP to a registration program under the newly established CTEC, which while established in statute is incorporated as a private 501(c)(3). Upon its creation, CTEC was not allocated any state funding and was not provided with any dedicated staff. The Legislature’s belief was that self-regulation by a nonprofit, nongovernmental entity would result in greater efficiency while still adequately protecting consumers.

CTEC is not the only regulatory body that oversees paid preparers of tax returns. Certified public accountants, active attorneys, enrolled agents, and enrolled actuaries, as well as certain financial institutions and their employees, are all exempt from CTEC’s requirements. These individuals are instead subject to their respective professional disciplinary standards for conduct and competence. CTEC serves as a catch-all entity for any other person “who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services.” This encompasses both state and federal income tax preparation.

After certified public accountants, CTEC Registered Tax Preparers (CRTPs) represent the second largest share of professionals engaged in paid tax preparation. As of June 2017, a total of 39,306 individuals were registered with CTEC. This number has remained relatively stable since CTEC last underwent sunset review in 2014. When CTEC was first created, a goal was established to obtain registration numbers approximating 38,000 to 48,000 preparers; registration numbers have consistently been within this range since 2005, though the number of registrants has been on a slight downward trend since 2014.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee analysis dated June 21, 2018:

• $208,000 (Fingerprint Fees Account) in FY 2019-20, $1.2 million (Fingerprint Fees Account) in FY 2020-21, and $230,000 ongoing for the DOJ’s increased administrative workload to process fingerprint images, and to compile and disseminate a fitness determination regarding the applicant based on the applicants criminal offender record information. DOJ anticipates staffing resources of 4.0 limited-term program technicians in FY 2019-20 and FY 2020-21, 1.0 permanent program technical in FY 2020-21, and 1.0 limited-term criminal identification specialists.
• The DOJ estimates revenue increases of $1,960,000 in FY 2020-21, and $392,000 in FY 2021-22 and ongoing, to the Fingerprint Fees Account as a result of the increase in fingerprint submissions. 
• As a private nonprofit, CTEC does not receive any General Fund support and does not submit Budget Change Proposals. The registration fees it collects go into a fund that is not part of the state budget and is not controlled by the Department of Finance. All enforcement penalties collected by the Franchise Tax Board from unlawful preparers go to the General Fund. CTEC’s annual revenues are primarily collected from registration fees during the months of September through December.

SUPPORT: (Verified 8/16/18)

California Society of Enrolled Agents
Prosperity Now
United Ways of California

OPPOSITION: (Verified 8/16/18)

None received

ARGUMENTS IN SUPPORT: The California Society of Enrolled Agents write in support of this measure and write that: “CTEC provides a valuable consumer protection, ensuring that tax preparers who are not federally-licensed meet a minimum level of training. As an active part of California’s tax ecosystem, CSEA has a seat on the CTEC Advisory Council and we support their mission.”

United Ways of California and Prosperity Now also write in support of this measure as it was amended June 21, 2018. They indicate that “This legislation is a crucial step towards ensuring tax preparers are held responsible for the accuracy of their returns and potential fraud. Tax preparer fraud and incompetency has enormous impacts on both taxpayers and state revenue; unfortunately, studies demonstrate that such fraud and incompetency is commonplace. Without clear standards for preparers and adequate enforcement activities, tax filers are at a severe disadvantage in selecting trustworthy tax preparation services.” They both believe that the changes made in this legislation will address some of the remaining deficiencies in the law and protect consumers who need these necessary tax preparation services, especially in the communities they serve.

ASSEMBLY FLOOR: 73-0, 5/17/18

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Cristina Garcia, Melendez, Muratsuchi, Santiago, Steinorth

Prepared by: 916-651-4104

8/18/18 14:55:28

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 3143 (Low) - Tax preparers

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

Retitles the Tax Preparer Law as the “Tax Preparation Act.” Recasts and revises provisions of the Tax Preparer Law to provide for the registration of tax preparers by the California Tax Education Council (CTEC) and adds other specified requirements to include compliance with Bagley-Keene Open Meeting Act. Establishes a searchable public registry of tax preparers registered by CTEC and provide other information as specified. Requires, beginning July 1, 2020, an applicant to register with CTEC to submit fingerprint images to the Department of Justice (DOJ), and authorizes CTEC to receive criminal offender record information and subsequent arrest notification.

Fiscal Impact:

• $208,000 (Fingerprint Fees Account) in FY 2019-20, $1.2 million (Fingerprint Fees Account) in FY 2020-21, and $230,000 ongoing for the DOJ’s increased administrative workload to process fingerprint images, and to compile and disseminate a fitness determination regarding the applicant based on the applicants criminal offender record information. DOJ anticipates staffing resources of 4.0 limited-term program technicians in FY 2019-20 and FY 2020-21, 1.0 permanent program technical in FY 2020-21, and 1.0 limited-term criminal identification specialists.
• The DOJ estimates revenue increases of $1,960,000 in FY 2020-21, and $392,000 in FY 2021-22 and ongoing, to the Fingerprint Fees Account as a result of the increase in fingerprint submissions. 
• As a private nonprofit, CTEC does not receive any General Fund support and does not submit Budget Change Proposals. The registration fees it collects go into a fund that is not part of the state budget and is not controlled by the Department of Finance. All enforcement penalties collected by the Franchise Tax Board from unlawful preparers go to the General Fund. CTEC’s annual revenues are primarily collected from registration fees during the months of September through December.

Background:

The California Tax Education Council (CTEC) was established in 1997 by Senate Bill 1077 (Greene). Prior to CTEC’s creation, tax preparers were fully licensed by the Tax Preparer Program (TPP) within the Department of Consumer Affairs (DCA). SB 1077 shifted responsibility for overseeing tax preparers from the TPP to a registration program under the newly established CTEC, which while established in statute is incorporated as a private 501(c)(3). Upon its creation, CTEC was not allocated any state funding and was not provided with any dedicated staff. The Legislature’s belief was that self-regulation by a nonprofit, nongovernmental entity would result in greater efficiency while still adequately protecting consumers.

After certified public accountants, CTEC Registered Tax Preparers (CRTPs) represent the second largest share of professionals engaged in paid tax preparation. As of June 2017, a total of 39,306 individuals were registered with CTEC. This number has remained relatively stable since CTEC last underwent sunset review in 2014. When CTEC was first created, a goal was established to obtain registration numbers approximating 38,000 to 48,000 preparers; registration numbers have consistently been within this range since 2005, though the number of registrants has been on a slight downward trend since 2014.

To register as an CRTP, an applicant must complete a total of 60 hours of education from a CTEC-approved provider—45 hours of federal tax education—15 hours of state tax education), covering basic personal income tax law, theory, and practice. (CTEC will accept two years of experience in alternatively authorized tax preparation experience in lieu of this education.) Once the applicant has completed their required education hours and passed a CTEC-approved final examination with a score of at least 70%, CTEC issues a Certificate of Completion. Registration with CTEC is required within 18 months of obtaining this certificate. Applicants must obtain a Preparer Tax Identification Number from the federal Internal Revenue Service (IRS). Finally, all CRTPs must purchase and maintain a $5,000 tax preparer bond.

CTEC is also charged with approving all providers of tax preparer education whose classes qualify for CRTP applicant Certificates of Completion and registrants’ continuing education requirements. Provider standards are set by a special CTEC committee, which also evaluates all schools seeking to become approved curriculum providers. CTEC must either approve or decline education provider applications within 120 days of receiving a request for approval, or the application is deemed approved. CTEC provides the list of approved providers to tax preparers and the public upon request.

Proposed Law:

1. Assembly Bill 3143 renames the Tax Prepare Law to the Tax Preparer Act, and includes the following provisions, among others:
   

• Requires, on or after July 1, 2019, a tax preparer to report a paid claim against its surety bond to CTEC, which shall post a notice of the claim on its Internet Web site.
• Requires CTEC meetings be subject to the Bagley-Keene Open Meeting Act (Bagley-Keene Act) and the board of directors of CTEC may adopt additional policies and procedures that provide greater transparency to registrants and the public than required by the Bagley-Keene Act.
  
• Requires CTEC to establish and maintain on its Internet Web site a searchable public registry of tax preparers registered by CTEC, and requires each registrant’s listing indicate whether the registrant is actively in compliance with the annual registration requirements, among other information.
  
• Requires CTEC, beginning July 1, 2019, to post the following on its Internet Web site:
  
  • All disciplinary actions taken against registrants by CTEC, including but not limited to misconduct that resulted in a suspension or revocation.
    
  • A list of registrants on probation, including the misconduct that resulted in the probation along with any terms placed on the probation.
    
• Requires, beginning July 1, 2020, CTEC, as a condition of registration, to require the applicant submit fingerprint images and related information to the Department of Justice for the purpose of obtaining criminal offender record information and subsequent arrest notification, as specified.
• Authorizes the CTEC to receive arrest notifiations and other background materials about applicants and registrants from a city, county, or city and county.

Related Legislation:

SB 1243 (Lieu, Chapter 395, Statutes of 2014) extended the sunset date for CTEC from January 1, 2015 to January 1, 2019.

Staff Comments:

CTEC’s renewal registration cycle begins on November 1 of each year through October 31 of the following year. The fee to register with CTEC is $33. The initial registration fee in 1997 was $25. It remained at $25 until it was increased beginning August 1, 2014 to $33. For those preparers who register late (after October 31), there is a late fee added to the $33.

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Jerry Hill, Chair

2017 - 2018 Regular

Bill No: AB 3143 Hearing Date: June 25, 2018

Subject: Tax preparers

SUMMARY:

Retitles the Tax Preparer Law as the “Tax Preparation Act.” Recasts, rewrites, clarifies and revises certain provisions of the Tax Preparer Law which provides for the registration of tax preparers by the California Tax Education Council (CTEC) and adds other specified requirements to include compliance with Bagley-Keene Open Meeting Act; establish and maintain on its Internet Web site a searchable public registry of tax preparers registered by CTEC and provide other information as specified;
beginning July 1, 2020, as a condition of registration, that an applicant to register with CTEC must submit fingerprint images so that CTEC may receive criminal offender record information and subsequent arrest notification.

Existing law:

1. Provides for the registration of tax preparers by CTEC) and repeals (sunsets) those provisions of law effective January 1, 2019. (BPC § 22250 et. seq.)
2. Requires all CTEC-registered tax preparers to maintain a $5,000 surety bond. (BPC § 22250)
3. Defines a “tax preparer" as a person who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services. (BPC § 22251 (a))
   
4. Defines a “tax preparer” to also mean a corporation, partnership, association, or other entity that has persons associated with it who have as part of their responsibilities the preparation of data and ultimate signatory authority of tax returns or that holds itself out as offering those services or having that authority. (Id.)
   
5. Specifies that a “tax preparer” does not include an employee who, as part of the regular clerical duties of employment, prepares his or her employer’s income, sales or payroll tax returns. (Id.)
   
6. Defines “council” as the California Tax Education Council that is a single nonprofit organization exempt from taxation under Section 501(c)(3) of the U.S. Tax Code and provides for the composition of CTEC as specified. (BPC § 22251 (d))
   
7. States that it is the intent of the Legislature in establishing CTEC and its registration of paid tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of this chapter. (BPC § 22251.1.)
8. Provides that the CTEC shall have responsibilities and duties as specified; shall issue registrations, deny applications and discipline registrants as authorized and may adopt bylaws, rules, regulations; and procedures necessary to effectuate the purposes of the Tax Preparer law. (BPC § 22251.2)
9. Requires that prior to rendering any tax preparation services, a tax preparer shall provide the customer in writing with the tax preparer’s name, address, telephone number, and evidence of compliance with the bonding requirement, including the bond number, if any. (BPC § 22252)
10. Makes it a violation of the Tax Preparer Law for a tax preparer to do or commit, and the CTEC may deny an application for registration or discipline a registrant for any of the specified violations. (BPC §§ 22253 and 22253.1.5)
11. Provides that CTEC may enter into an agreement with the Franchise Tax Board (FTB) to provide reimbursement to the FTB for any expenses incurred to identify an individual who is not in compliance with the Tax Preparer Law. (BPC § 22253.2)
12. Authorizes CTEC to discipline registrants by placing the registrant on probation, suspending the registration, revoking the registration, or other actions.
    (BPC § 22253.3)
13. Requires CTEC to issue a “certificate of completion” when a tax preparer demonstrates completion of not less than 60 hours of specified educational requirements, and requires an annual 20 hours of continuing education for active registrants. (BPC § 22255)
    
14. Exempts enrolled agents, attorneys, certified public accountants, and employees of these licensees, as well as certain financial institutions, from CTEC’s registration requirements. (BPC § 22258)

This bill:

1. Specifies that the Tax Preparer law shall be known and be cited as the Tax Preparation Act.
   
2. Requires that on or after July 1, 2019, a tax preparer shall report a paid claim against its surety bond to CTEC, which shall post a notice of the claim on its Internet Web site.
   
3. Specifies the protection of the public shall be the highest priority for CTEC in exercising its registration and disciplinary authority, and any other functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount.
   
4. Provides that the meetings of CTEC shall be subject to the Bagley-Keene Open Meeting Act (Bagley-Keene Act) and that the board of directors of CTEC may adopt additional policies and procedures that provide greater transparency to registrants and the public than required by the Bagley-Keene Act.
   
5. Requires CTEC to establish and maintain on its Internet Web site a searchable public registry of tax preparers registered by CTEC and requires that each registrant’s listing shall clearly indicate whether the registrant is actively in compliance with the annual registration requirements and shall include any of the following information that is applicable to the registrant:
   
   1. The registrant’s name and mailing address;
      
   2. The registrant’s CTEC registration number; and
      
   3. Any other information CTEC believes would be beneficial to consumers of tax preparation services.
      
6. Requires the public registry to also contain direct links to the Internet Web sites maintained by the California Board of Accountancy, the State Bar of California, and the Internal Revenue Service where public information regarding tax preparers exempt from the Tax Preparer Law may be obtained.
   
7. Requires that prior to rendering any tax preparation services, a tax prepare shall provide the customer in writing with the following:
   
   1. The tax preparer’s name, address, telephone number.
      
   2. Evidence of compliance with the boding requirement, including the bond number, if any.
      
   3. The address of CTEC’s Internet Web site.
      
8. Provides that CTEC may enter into an agreement with the FTB to provide reimbursement to the FTB for assistance in carrying out enforcement activities consistent with the Tax Preparer Law.
   
9. Requires CTEC, beginning July 1, 2019, to post the following on its Internet Web site:
   
   1. All disciplinary actions taken against registrants by CTEC, including but not limited to misconduct that resulted in a suspension or revocation.
      
   2. A list of registrants on probation, including the misconduct that resulted in the probation along with any terms placed on the probation.
      
10. Requires beginning July 1, 2020, as a condition of registration, that CTEC shall require the applicant to submit fingerprint images as directed by CTEC and in a form consistent the requirements of receiving fingerprint images and criminal offender record information and subsequent arrest notification, as specified.
    
11. Provides that any employee of any person who is exempt from the Tax Preparer Law shall also be exempt as long as they are functioning within the scope of that employment and that the employee is supervised by a person exempt, as specified who reviews the return, signs it, and is responsible for its content.
    
    

FISCAL EFFECT: No state costs associated with extending CTEC. The registration of tax preparers is handled by a nonprofit regulating entity outside of state government and not supported by state funds.

COMMENTS:

1. Purpose. This bill is sponsored by the Author. According to the Author’s office, this bill is necessary to reflect the Assembly Business and Professions Committee staff recommendations made for the purpose of remedying issues identified through CTEC’s Sunset Review process. This measure is one of four sunset bills the Author is sponsoring this year. The Author indicates that this bill is necessary to make changes to the Act in order to improve the effectiveness and efficiency of this regulator entity and unless legislation is carried this year to extend the sunset dates of the CTEC program, it will be repealed on January 1, 2019.
   
2. Oversight Hearings and Sunset Review of Licensing Boards of the Department of Consumer Affairs and CTEC. Beginning in 2017, the Senate Business and Professions Committee and the Assembly Business and Professions Committee (Committees) began their comprehensive sunset review oversight of 13 regulatory entities and the DCA including: DHCC, Acupuncture Board, Bureau of Automotive Repair, Professional Fiduciaries Bureau, Structural Pest Control Board, California Tax Education Council, and the Bureau of Electronic and Appliance Repair, Home Furnishings, and Thermal Insulation.

The Committees conducted two oversight hearings in February and March of 2018. This bill and the accompanying sunset bills are intended to implement legislative changes as recommended by staff of the Committees and which are reflected in the Background Papers prepared by Committee staff for each agency and program reviewed this year.

1. Background on CTEC.
   

Overview of CTEC. The California Tax Education Council (CTEC) was established in 1997 by Senate Bill 1077 (Greene). Prior to CTEC’s creation, tax preparers were fully licensed by the Tax Preparer Program (TPP) within the Department of Consumer Affairs (DCA). In what was reportedly called a “grand experiment” by the Legislature, SB 1077 shifted responsibility for overseeing tax preparers from the TPP to a registration program under the newly established CTEC, which while established in statute is incorporated as a private 501(c)(3). Upon its creation, CTEC was not allocated any state funding and was not provided with any dedicated staff. The Legislature’s belief was that self-regulation by a nonprofit, nongovernmental entity would result in greater efficiency while still adequately protecting consumers.

CTEC is not the only regulatory body that oversees paid preparers of tax returns. Certified public accountants, active attorneys, enrolled agents, and enrolled actuaries, as well as certain financial institutions and their employees, are all exempt from CTEC’s requirements. These individuals are instead subject to their respective professional disciplinary standards for conduct and competence. CTEC serves as a catch-all entity for any other person “who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services.” This encompasses both state and federal income tax preparation.

After certified public accountants, CTEC Registered Tax Preparers (CRTPs) represent the second largest share of professionals engaged in paid tax preparation. As of June 2017, a total of 39,306 individuals were registered with CTEC. This number has remained relatively stable since CTEC last underwent sunset review in 2014. When CTEC was first created, a goal was established to obtain registration numbers approximating 38,000 to 48,000 preparers; registration numbers have consistently been within this range since 2005, though the number of registrants has been on a slight downward trend since 2014.

The requirements for an individual to become registered as a CRTP are relatively basic. First, an applicant must complete a total of 60 hours of education from a CTEC-approved provider—45 hours of federal tax education—15 hours of state tax education), covering basic personal income tax law, theory, and practice. (CTEC will accept two years of experience in alternatively authorized tax preparation experience in lieu of this education.) Once the applicant has completed their required education hours and passed a CTEC-approved final examination with a score of at least 70%, CTEC issues a Certificate of Completion. Registration with CTEC is required within 18 months of obtaining this certificate. Applicants must obtain a Preparer Tax Identification Number from the federal Internal Revenue Service (IRS). Finally, all CRTPs must purchase and maintain a $5,000 tax preparer bond.

CTEC is also charged with approving all providers of tax preparer education whose classes qualify for CRTP applicant Certificates of Completion and registrants’ continuing education requirements. Provider standards are set by a special CTEC committee, which also evaluates all schools seeking to become approved curriculum providers. CTEC must either approve or decline education provider applications within 120 days of receiving a request for approval, or the application is deemed approved. CTEC provides the list of approved providers to tax preparers and the public upon request.

Governance of CTEC. CTEC’s Board of Directors (Board) is comprised entirely of professional members. Six directors are CRTPs appointed by the Board. CRTPs are elected for two-year terms, and may be subsequently re-elected at the end of their term with no limits. Each director serves in a voluntary capacity. Currently, the Board has 14 directors, including 3 officers.

The remaining directors are associated with either a nonprofit tax preparer membership organization or a business engaged in tax preparation. Each professional society, association, or other entity operating as a California nonprofit corporation that has represented a membership of at least 400 tax preparers, enrolled agents, attorneys, or certified public accountants for the past three years may choose to appoint a maximum of one director to the Board. Similarly, a for-profit tax preparation corporation with at least 400 employees or franchisees (which can include the employees of a franchisee) that has been operating in California for the last three years may appoint a maximum of one director. These directors serve unlimited terms at the pleasure of their respective appointing authority. The following nonprofit organizations and for-profit corporations have representatives on the Board:

• California Society of Enrolled Agents (CSEA)
• California Society of Tax Consultants, Inc. (CSTC)
• H&R Block Tax Services, Inc.
• Jackson Hewitt Tax Service
• Liberty Tax Service
• National Association of Enrolled Agents (NAEA)
• National Association of Tax Professionals (NATP)
• National Society of Accountants (NSA)

Fiscal and Fund Analysis. As a private nonprofit, CTEC does not receive any General Fund support and does not submit Budget Change Proposals. The registration fees it collects go into a fund that is not part of the state budget and is not controlled by the Department of Finance. All enforcement penalties collected by the FTB from unlawful preparers go to the General Fund. CTEC’s administrative policies state that all approved budgets must be balanced, and all expenditures must be included in the Board-approved CTEC budget for the current fiscal year. CTEC’s annual revenues are primarily collected from registration fees during the months of September through December. CTEC’s fiscal year begins July 1, three months before the beginning of the revenue stream for the fiscal year. Therefore, three months annualized operating expenses must be funded from the prior year’s revenues and provided for in the prior year’s budget.

CTEC’s renewal registration cycle begins on November 1 of each year through October 31 of the following year. The fee to register with CTEC is $33. The initial registration fee in 1997 was $25. It remained at $25 until it was increased beginning August 1, 2014 to $33. For those preparers who register late (after October 31), there is a late fee added to the $33.

Enforcement. As a nonprofit, nongovernmental regulatory entity, enforcement for CTEC is handled differently from most other regulatory entities under the Business and Professions Code. CTEC is not a client agency represented in litigation by the Attorney General and its enforcement cases are not typically handled through the Department of Justice (DOJ). Statute requires tax preparers to furnish evidence of their surety bond “upon the request of any state, federal agency or any law enforcement agency,” as well as CTEC. Statute also establishes a broad private right of action wherein “any person may maintain an action for enforcement of [duties required for registered tax preparers], or to recover a civil penalty in the amount of one thousand dollars, or for both enforcement and recovery.”

CTEC’s enforcement priorities are not focused on disciplining existing registered tax preparers; instead, CTEC’s principle goal is to identify and eliminate unlawful preparers who are not appropriately educated, bonded, and registered. Once an unlawful preparer has been identified, CTEC’s goal is to allow that preparer 90 days to take the required education, purchase a bond, and register with CTEC. CTEC believes the combination of enforcement and education efforts deter unlawful activity.

The primary enforcement agency for CTEC is the FTB. CTEC contracts with the Franchise Tax Board (FTB) for investigation and enforcement activities on its behalf.

Over the years since CTEC was established, the FTB’s enforcement program has identified hundreds of unlawful preparers, provided them with information regarding CTEC requirements, and most individuals have come into compliance and become CRTPs. Without the enforcement arm of the FTB, CTEC believes there would be no reason for preparers to become registered. CTEC states that it considers its enforcement program to have been an overwhelming success. The FTB has taken steps to further enhance its enforcement process by using systems to improve verification of preparer information and correspondence prior to imposition of the failure to register as a tax preparer penalty. The process has shown an increase in failure to register penalties imposed with an 85% increase since the 2012/13 season.

1. Review of the Tax Preparer Program, Issues Identified and Recommended Changes. The following are some of the issues pertaining to CTEC that may require statutory changes, along with background information concerning the particular issue. Recommendations were made by Committee staff regarding the particular issue areas which needed to be addressed.
   
   1. Issue: Continued Regulation by the CTEC.
      

Background: The responsibility for approving tax schools and certifying the education of tax preparers was transferred from the California State Tax Preparer Program, under the Department of Consumer Affairs, to CTEC by the Governor and the Legislature effective July 1, 1997. Since taking over this responsibility, CTEC has continued to be more efficient and effective and has provided better value, service and response to the profession of tax preparers than the prior state run program. CTEC has also been very responsive to the recommendations of the Committees and that of the prior Joint Legislative Sunset Review Committee.

Recommendation: Committee staff recommended that the registration of tax preparers by CTEC be continued and the profession be regulated by the current Council membership in order to protect the interests of the public and consumers in seeking the assistance of tax preparers and that CTEC be reviewed by the Committees once again in four years.

The current language in this measure reflects this recommended change and extends the sunset of CTEC for four years to January 1, 2023.

• 1. Issue: Apply Bagley-Keene Open Meeting Act (Act) to CTEC Meetings.
     

Background: The Bagley-Keene Open Meeting Act (Act) requires meetings of regulatory bodies to be noticed and made available for attendance or observation by members of the public. The intent of the Act is “that actions of state agencies be taken openly and that their deliberation be conducted openly.” These requirements are applied to “state bodies,” which are defined within the Act as including “a board, commission, committee, or similar multimember body that exercises any authority of a state body delegated to it by that state body.” While the Act’s intent would appear to apply to a nonprofit created in statute to fulfill a public function, similar nonprofit regulatory bodies have had their applicability to Bagley-Keene expressly codified. Such a memorialization of open meeting law compliance requirements has not been instituted for CTEC.

Recommendation: Committee staff recommended that the Act should be made applicable to the meetings of CTEC.

The current language in this measure reflects this recommended change and specifies that the meetings of CTEC shall be subject to the Bagley-Keene Open Meeting Act.

• 1. Issue: Grant CTEC the Authority to Request and Receive Criminal History Information.
     

Background: In 2013, CTEC successfully sponsored legislation enabling the council to deny registration to an applicant or deregister an existing registrant if the individual was convicted of “any felony or misdemeanor that is substantially related to the qualifications, functions, or duties of a registrant, in which event the record of the conviction shall be conclusive evidence of the crime.” This authority is analogous to the discretion afforded to other state regulatory entities when denying an application or disciplining a licensee.

However, while CTEC has the authority to take action based on the criminal conviction history of an individual under their jurisdiction, they do not have the authority to receive this information directly from the DOJ. Similar regulatory entities require background checks as part of their application process, and continue to monitor future arrests and convictions for potential suspensions or revocations. CTEC does not require background checks from applicant registrants and does not automatically receive notification from DOJ when a registrant is arrested for or convicted of a new crime.

According to CTEC, it has only utilized its authority to deny an application or deregister a CRTP based on criminal convictions a handful of times since the authority was granted. Currently, CTEC will typically only learn of a conviction if the applicant or registrant has been backgrounded by another regulatory body that does receive background check information, such as the California Board of Accountancy, and that entity relays the information to the council. Without express statutory authorization to request and receive criminal history information from the DOJ, CTEC is incapable of obtaining this information itself.

Recommendation: Committee staff recommended that CTEC should consider whether there would be a significant benefit in requiring criminal history background checks as a condition of registration and whether it believes public protection would be better served if CTEC received notification subsequent arrests that may result in the deregistration of active registrants. If CTEC does wish to incorporate this authority into their existing application and enforcement protocols, they should consult with the DOJ about what is needed to utilize the background check process and what barriers CTEC’s nonprofit status may present.

The current language in this measure reflects this recommended change and specifies that prior to issuing a certificate of completion to an applicant for registration as a tax preparer, that the applicant submit fingerprint images so CTEC may receive criminal offender record information and subsequent arrest notification. This requirement shall not go into effect until July 1, 2020.

1. Related Legislation This Session. SB 1481 (Hill) is the sunset vehicle for Structural Pest Control Board. (Status: This bill is currently pending in the Assembly Committee on Appropriations.)
   
   SB 1482 (Hill) is the sunset vehicle for the Dental Hygiene Committee. (Status: This bill is currently pending in the Assembly Committee on Business and Professions.)
   
   SB 1483 (Hill) is the sunset vehicle for the Bureau of Electronic and Appliance Repair, Home Furnishings, and Thermal Insulation. (Status: This bill is currently pending in the Assembly Committee on Business and Professions.)
   
   AB 3141 (Assembly Committee on Business and Professions) is the sunset vehicle for the Bureau of Automotive Repair. (Status: This bill is currently pending in the Senate Committee on Business, Professions and Economic Development.)
   
   AB 3142 (Low) is the sunset vehicle for the California Acupuncture Board. (Status: This bill is currently pending in the Senate Committee on Business, Professions and Economic Development.)
   
   AB 3144 (Assembly Committee on Business and Professions) is the sunset vehicle for the Professional Fiduciaries Bureau. (Status: This bill is currently pending in the Senate Committee on Business, Professions and Economic Development.)
   
2. Prior Related Legislation. SB 1243 (Lieu, Chapter 395, Statutes of 2014) extended the sunset date for CTEC from January 1, 2015 to January 1, 2019.
   
   SB 484 (Wyland, Chapter 660, Statutes of 2013) revised the composition of CTEC, authorized CTEC to deny, suspend, or revoke a tax preparer registration for specified violations, and made other related changes to the Tax Preparers Law.
   
3. Arguments in Support. The California Society of Enrolled Agents write in support of this measure and write that: “CTEC provides a valuable consumer protection, ensuring that tax preparers who are not federally-licensed meet a minimum level of training. As an active part of California’s tax ecosystem, CSEA has a seat on the CTEC Advisory Council and we support their mission.”
   
   United Ways of California and Prosperity NOW (UWC/PN) have a “Support if Amended” position on the bill. UWC/PN have requested that a number of recommended reforms to CTEC be incorporated into the bill governing how CTEC-registered tax preparers interact with consumers. UWC/PN states that these amendments would “help protect low-income filers from fraudulent or predatory practices.” UWC/PN requests that transparency be improved by requiring tax preparers to disclose information relating to their fees to consumers as well as the FTB. UWC/PN also requests that CTEC establish “a public database of formal complaints so that consumers can compare registered tax preparers,” stating that “the complaint database can help taxpayers learn from each other’s experiences and allow the FTB to identify issues and intervene when necessary.” UWC/PN also believes that CTEC should consider incorporating a standardized exam into its registration requirements. UWC/PN further believes the definition of individuals and entities exempt from registration should be clarified to state that an employee of an exempt tax preparer must occupy the same physical office and be directly supervised by a registered preparer or exempted person rather than being able to claim they are merely assistants when they are actually doing the work of a tax preparer. Finally, UWC/PN believes that “the FTB should have the enforcement power to address misconduct regarding actual tax preparation” and not merely enforce the state’s registration requirement generally.
   
4. Recent Amendments Address Most of the Concerns as Indicated Above. As indicated by the Author, amendments to the bill are intended to speak to the broader issues outlined in United Way’s and Prosperity NOW letter regarding the need for more accountability and transparency in CTEC’s regulation of tax preparers.  Providing the public with access to substantiated misconduct by tax preparers, requiring background checks for new registrants, and empowering CTEC to partner with the FTB for enforcement activities against registered preparers, seem to address their concern that low income communities are currently left vulnerable to unscrupulous tax preparers. 

SUPPORT AND OPPOSITION:

Support:

California Society of Enrolled Agents

Support if Amended:

Prosperity NOW

United Way of California

Opposition:

None on file as of June 20, 2018.

-- END --

Date of Hearing: May 9, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 3143

Author:(Committee on Business and Professions) – As Introduced Ver:February 16, 2018

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill extends the sunset date for the California Tax Education Council (CTEC), as well as its authority to register paid tax preparers, from January 1, 2019 to January 1, 2023.

FISCAL EFFECT:

No state costs associated with extending CTEC. The registration of tax preparers is handled by a nonprofit regulating entity outside of state government and not supported by state funds.

COMMENTS:

Purpose and Background. This bill is CTEC’s sunset vehicle. The bill currently only includes provisions extending CTEC’s sunset until 2023. Any subsequent reforms made to CTEC through this legislation will be achieved through collaboration with the Senate Committee on Business, Professions and Economic Development and other stakeholders.

CTEC is a nonprofit corporation that represents tax preparers in the state. Existing law requires tax preparers to register with CTEC, obtain a certificate of completion of specified tax education curriculum, and maintain a surety bond of $5,000 payable to the State of California. The program sunsets on January 1, 2019.

Prior Legislation. SB 1243 (Lieu), Chapter 395, Statutes of 2014, extended the sunset date for CTEC from January 1, 2015 to January 1, 2019.

SB 484 (Wyland), Chapter 660, Statutes of 2013, revised the composition of CTEC, authorized CTEC to deny, suspend, or revoke a tax preparer registration for specified violations, and made other related changes to the Tax Preparers Law.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing:

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

ABPCA Bill Id:AB 3143

Author:(Committee on Business and Professions) – As Introduced Ver:February 16, 2018

SUBJECT: Tax preparers.

SUMMARY: Extends the sunset date for the California Tax Education Council (CTEC) to January 1, 2023.

EXISTING LAW:

1. Establishes CTEC as a nongovernmental, nonprofit organization tasked with registering paid tax preparation professionals who are not otherwise exempt from its registration requirements. (BPC § 22251)
2. States that it is the intent of the Legislature in establishing CTEC and its registration of paid tax preparers to enable consumers to easily identify credible tax preparers who are bonded and registered, to ensure tax preparers receive adequate education and treat confidential information appropriately, to prohibit tax preparers from making fraudulent, untrue, or misleading representations, and to provide for a self-funded nonprofit oversight body to register tax preparers and ensure that they meet all of the requirements of this chapter. (BPC § 22251.1.)
3. Exempts enrolled agents, attorneys, certified public accountants, and employees of these licensees, as well as certain financial institutions, from CTEC’s registration requirements. (BPC § 22258)
4. Requires all CTEC-registered tax preparers to maintain a $5,000 surety bond. (BPC § 22250)
5. Requires tax preparers registered with CTEC to complete a minimum of 60 hours of tax preparation education prior to registering, and requires an annual 20 hours of continuing education for active registrants. (BPC § 22255)
6. Authorizes CTEC to discipline registrants by placing the registrant on probation, suspending the registration, revoking the registration, or other actions. (BPC § 22253.3)

THIS BILL:

1. Extends the sunset date for CTEC, as well as its authority to register paid tax preparers, from January 1, 2019 to January 1, 2023.

FISCAL EFFECT: Unknown; this bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is CTEC’s sunset vehicle. This legislation provides an opportunity to implement recommendations arising out of the Legislature’s sunset review process. Currently, this bill would simply extend the sunset date for CTEC until January 1, 2023.

Background.

Overview of CTEC. The California Tax Education Council (CTEC) was established in 1997 by Senate Bill 1077 (Greene). Prior to CTEC’s creation, tax preparers were fully licensed by the Tax Preparer Program (TPP) within the Department of Consumer Affairs (DCA). In what was reportedly called a “grand experiment” by the Legislature, SB 1077 shifted responsibility for overseeing tax preparers from the TPP to a registration program under the newly established CTEC, which while established in statute is incorporated as a private 501(c)(3). Upon its creation, CTEC was not allocated any state funding and was not provided with any dedicated staff. The Legislature’s belief was that self-regulation by a nonprofit, nongovernmental entity would result in greater efficiency while still adequately protecting consumers.

CTEC is not the only regulatory body that oversees paid preparers of tax returns. Certified public accountants, active attorneys, enrolled agents, and enrolled actuaries, as well as certain financial institutions and their employees, are all exempt from CTEC’s requirements. These individuals are instead subject to their respective professional disciplinary standards for conduct and competence. CTEC serves as a catch-all entity for any other person “who, for a fee or for other consideration, assists with or prepares tax returns for another person or who assumes final responsibility for completed work on a return on which preliminary work has been done by another person, or who holds himself or herself out as offering those services.” This encompasses both state and federal income tax preparation.

After certified public accountants, CTEC Registered Tax Preparers (CRTPs) represent the second largest share of professionals engaged in paid tax preparation. As of June 2017, a total of 39,306 individuals were registered with CTEC. This number has remained relatively stable since CTEC last underwent sunset review in 2014. When CTEC was first created, a goal was established to obtain registration numbers approximating 38,000 to 48,000 preparers; registration numbers have consistently been within this range since 2005, though the number of registrants has been on a slight downward trend since 2014.

The requirements for an individual to become registered as a CRTP are relatively basic. First, an applicant must complete a total of 60 hours of education from a CTEC-approved provider—45 hours of federal tax education—15 hours of state tax education), covering basic personal income tax law, theory, and practice. (CTEC will accept two years of experience in alternatively authorized tax preparation experience in lieu of this education.) Once the applicant has completed their required education hours and passed a CTEC-approved final examination with a score of at least 70%, CTEC issues a Certificate of Completion. Registration with CTEC is required within 18 months of obtaining this certificate. Applicants must obtain a Preparer Tax Identification Number from the federal Internal Revenue Service (IRS). Finally, all CRTPs must purchase and maintain a $5,000 tax preparer bond.

CTEC is also charged with approving all providers of tax preparer education whose classes qualify for CRTP applicant Certificates of Completion and registrants’ continuing education requirements. Provider standards are set by a special CTEC committee, which also evaluates all schools seeking to become approved curriculum providers. CTEC must either approve or decline education provider applications within 120 days of receiving a request for approval, or the application is deemed approved. CTEC provides the list of approved providers to tax preparers and the public upon request.

Governance of CTEC. CTEC’s Board of Directors (Board) is comprised entirely of professional members. Six directors are CRTPs appointed by the Board. CRTPs are elected for two-year terms, and may be subsequently re-elected at the end of their term with no limits. Each director serves in a voluntary capacity. Currently, the Board has 14 directors, including 3 officers.

The remaining directors are associated with either a nonprofit tax preparer membership organization or a business engaged in tax preparation. Each professional society, association, or other entity operating as a California nonprofit corporation that has represented a membership of at least 400 tax preparers, enrolled agents, attorneys, or certified public accountants for the past three years may choose to appoint a maximum of one director to the Board. Similarly, a for-profit tax preparation corporation with at least 400 employees or franchisees (which can include the employees of a franchisee) that has been operating in California for the last three years may appoint a maximum of one director. These directors serve unlimited terms at the pleasure of their respective appointing authority. The following nonprofit organizations and for-profit corporations have representatives on the Board:

• California Society of Enrolled Agents (CSEA)
• California Society of Tax Consultants, Inc. (CSTC)
• H&R Block Tax Services, Inc.
• Jackson Hewitt Tax Service
• Liberty Tax Service
• National Association of Enrolled Agents (NAEA)
• National Association of Tax Professionals (NATP)
• National Society of Accountants (NSA)

Staff. CTEC does not have any employees. The program is administered through Advocation Strategies Inc., an outside firm that contracts with CTEC to provide staff support services for all of its functions. CTEC pays Advocation Strategies an administrative management fee, which is $45,750 per month under the current contract. This fee covers all staff support, office space, and all office equipment necessary to administer the program. Advocation Strategies has been the firm administering the program since CTEC’s inception in 1997. CTEC also contracts for the following services: curriculum review, advertising and public relations, audit, legal counsel, and IT services. CTEC additionally contracts with the Franchise Tax Board (FTB) for investigation and enforcement activities on its behalf.

Fiscal and Fund Analysis. As a private nonprofit, CTEC does not receive any General Fund support and does not submit Budget Change Proposals. The registration fees it collects go into a fund that is not part of the state budget and is not controlled by the Department of Finance. All enforcement penalties collected by the FTB from unlawful preparers go to the General Fund. CTEC’s administrative policies state that all approved budgets must be balanced, and all expenditures must be included in the Board-approved CTEC budget for the current fiscal year. CTEC’s annual revenues are primarily collected from registration fees during the months of September through December. CTEC’s fiscal year begins July 1, three months before the beginning of the revenue stream for the fiscal year. Therefore, three months annualized operating expenses must be funded from the prior year’s revenues and provided for in the prior year’s budget.

In addition, an operating reserve equal to two months annualized operating expenses is included in each current year budget. The combination requires budgeted reserves equal to two months annualized expenses. The reserve includes $50,000 restricted funds for possible legal action taken by the FTB against a non-compliant preparer. This reserve level is mandated by CTEC policy and is not set in statute. To fund the reserve, CTEC maintains certificates of deposit, which are reflected in the beginning balance of each fiscal year, reported for each of the past four years as follows:

• FY 2013/14: $400,000
• FY 2014/15: $250,000
• FY 2015/16: $400,000
• FY 2016/17: $650,000

CTEC’s renewal registration cycle begins on November 1 of each year through October 31 of the following year. The fee to register with CTEC is $33. The initial registration fee in 1997 was $25. It remained at $25 until it was increased beginning August 1, 2014 to $33. For those preparers who register late (after October 31), there is a late fee added to the $33.

The Board has periodically increased the fee for late registration in order to encourage timely compliance of the law by tax preparers. The initial late fee was $12.50. It was increased to $13, then $15. In November 2012 the late fee was increased to $55. For those registering late (the late registration period is from November 1 through January 15 of the following year), the total cost to renew their registration is $88. The increased late fee was initiated due to the large number of preparers renewing late.

Statute does not specify the fees CTEC can charge preparers, except that the fees must be related to the regulatory cost of providing services and carrying out CTEC’s responsibilities and duties and may not exceed the reasonable cost of the services or responsibilities.

Registration of Tax Preparers. Prior to 1997, the TPP provided for full licensure of tax preparers under the DCA. When CTEC took over responsibility for regulating tax preparation professionals, it replaced licensure with a registration program for those who meet the statute’s education and bonding requirements. At the time of the transfer, there were 28,831 registered preparers. Information received that first year from the FTB indicated that there were anywhere between 10,000 and 20,000 unlawfully unregulated preparers in California.

The expectation for CTEC was to reach registration numbers somewhere between 38,000 and 48,000. As of July 1, 2017, CTEC has 39,306 currently registered tax preparers. CTEC’s annual registration numbers for the last 12 years have been within CTEC’s initial goal of registering between 38,000 and 48,000 annual registrants. Moving forward, CTEC’s aim is to increase its current registration numbers and has begun working with the FTB to target unregistered preparers through what has been named the “Ghost Tax Preparer” program. This will be a major effort by CTEC’s Public Awareness and Governmental Relations Committees working with the FTB to identify Ghost Preparers (those individuals preparing returns and not signing them). Once identified, these individuals would be urged to register with CTEC or, if they continue preparing, would be cited and fined by the FTB. CTEC’s stated goal is not to have individuals fined, but rather to educate them regarding the law and bring them into compliance.

Since CTEC requires online registration, an application is processed immediately, including verification of education. It takes 4-6 weeks to send the appropriate certificate to the applicant; however, that applicant can begin preparing taxes once their application is completed online and they immediately receive a computer-generated verification that their registration has been successful. In comparison to paper applications, online registration has significantly reduced processing time. Paper applications are still accepted on a case-by-case basis but are rarely submitted. CTEC currently does not have a backlog of pending applications.

CTEC issues applicants for registration a Certificate of Completion once they have completed their 60-hour qualifying education course from a CTEC-approved provider. Final examinations are not administered by CTEC, and CTEC does not have a standardized test that must be used by providers. The examination process is left to the provider; however, the provider’s course, including the exam, must be reviewed and approved by CTEC. All CTEC-approved providers who offer qualifying education courses are required to have a final exam, and individuals taking the course must pass that exam with a grade of not less than 70%.

Applicants for registration by CTEC are not fingerprinted and do not have to pass a criminal history background check by the Department of Justice (DOJ) as a condition of registration. CTEC does not verify personal information (i.e. social security number or personal tax identification number) provided by the applicant; however, CTEC does verify the required education that tax preparers must take from CTEC-approved providers. Approved providers must submit student course information electronically to CTEC.

Education. To become a CTEC-approved provider, an applicant must submit a completed CTEC Curriculum Provider Application. The completed packet will go through an administrative review to be sure that all necessary components of the application have been provided. As part of the application, a digital copy of all course material will be provided and sent to a CTEC curriculum reviewer. The review includes a meticulous examination of a prospective provider’s course. CTEC has a review check list that includes the critical elements of a 60-hour course. If the provider’s course fails the review, they have the option to start over with their approval process or appeal the findings to the Board.

Once the review is complete, the reviewer will send to CTEC’s Curriculum Provider Standards Committee a recommendation of approval or a recommendation of denial. The committee will review the recommendation and will contact the applicant with their decision. A separate approval is required to be a qualifying education provider and a continuing education provider. The IRS has developed a national tax preparer program they have fashioned closely to the California program. The Director of Continuing Education Management for the IRS Return Preparer Office regularly attends the CTEC Board meetings. The IRS has also implemented a course review and approval process similar to CTEC’s, and has designated CTEC as an approved IRS Licensing Body. Any provider approved by CTEC is automatically approved as an IRS provider.

Recently, CTEC reviewed the new joint American Institute of Certified Public Accountants (AICPA) and National Association of State Boards of Accountancy (NASBA) education standards and the IRS education standards for their national registration program. The Board adopted the AICPA/NASBA approach to determining the continuing education awarded for self-study courses. The Board went farther than AICPA/NASBA standards and gave its curriculum review staff the latitude to deny approval of an education course under certain conditions.

CTEC approves continuing education providers by initially reviewing and approving one of their courses. The approved provider is then allowed to provide additional courses that have not been reviewed. Because of the hundreds of courses being taught, having the funds and staff to review every course is a long-standing problem not only for CTEC but also the IRS and NASBA.

CTEC verifies both qualifying and continuing education of every registered tax preparer every year. CTEC requires all approved providers to electronically report successful completion of both qualifying and continuing education courses to CTEC, and then matches those courses to individuals attempting to register online. CTEC does not allow self-certification of either qualifying or continuing education. Preparers are able to go into their personal online accounts and verify the number of education hours reported by their provider.

If an individual does not have the required continuing education credit for the year, CTEC will not renew the applicant’s registration, which is due on October 31 of each year, and the applicant can no longer engage in paid tax return preparation in California. If they do not make the October 31 deadline, they are given until January 15 of the following year to make up the education and pay a late fee to register. If they do not register by January 15, they would have to retake the 60-hour qualifying education course and register as a new preparer. There were no Continuing Education audits conducted in the last four years, since all continuing education courses are electronically verified for every applicant every year.

As an overview of the process outlined in the policies, CTEC contracts with a number of knowledgeable reviewers who verify the continuing education awarded by either a word count formula or pilot testing using standards very similar to those adopted by both AICPA and NASBA. This includes verifying an interactive element through the use of 3 review questions per continuing education hour at the end of each education element, and 5 exam questions per continuing education hour at the conclusion of the course.

The reviewers also look for and deny approval for courses whose material and questions are overly simplistic, and questions that are simply look-up questions with no educational value. The review team is headed up by a professional educator, Phillip Storrer, CPA. Mr. Storrer is a retired professor of taxation from Hayward University, Hayward, CA. CTEC also requires providers to undergo a course review every three years to renew their status as approved providers.

There are two types of continuing education provider applications: (1) New applications coming in from providers who are not currently approved by CTEC; and (2) Continuing education provider applications being submitted by approved providers who are up for periodic review (every three years an approved provider must resubmit a completed provider application, including course materials for review).

In an effort to ensure the quality of continuing education courses, in 2013 CTEC instituted a provider audit policy. This policy requires that the five most frequently taken courses be audited each year in addition to random audits and audits as the result of complaints. CTEC’s logic is that students will look for an easy way to get continuing education credits, and, by requiring the most frequently taken course, their review staff can uncover deficient courses. Audits are performed by members of the CTEC course review staff, who subscribe to the course just like any other student without the provider’s knowledge.

Enforcement. As a nonprofit, nongovernmental regulatory entity, enforcement for CTEC is handled differently from most other regulatory entities under the Business and Professions Code. CTEC is not a client agency represented in litigation by the Attorney General and its enforcement cases are not typically handled through the DOJ. Statute requires tax preparers to furnish evidence of their surety bond “upon the request of any state, federal agency or any law enforcement agency,” as well as CTEC. Statute also establishes a broad private right of action wherein “any person may maintain an action for enforcement of [duties required for registered tax preparers], or to recover a civil penalty in the amount of one thousand dollars, or for both enforcement and recovery.”

CTEC’s enforcement priorities are not focused on disciplining existing registered tax preparers; instead, CTEC’s principle goal is to identify and eliminate unlawful preparers who are not appropriately educated, bonded, and registered. Once an unlawful preparer has been identified, CTEC’s goal is to allow that preparer 90 days to take the required education, purchase a bond, and register with CTEC. CTEC believes the combination of enforcement and education efforts deter unlawful activity.

The primary enforcement agency for CTEC is the FTB. Over the years since CTEC was established, the FTB’s enforcement program has identified hundreds of unlawful preparers, provided them with information regarding CTEC requirements, and most individuals have come into compliance and become CRTPs. Without the enforcement arm of the FTB, CTEC believes there would be no reason for preparers to become registered. CTEC states that it considers its enforcement program to have been an overwhelming success. The FTB has taken steps to further enhance its enforcement process by using systems to improve verification of preparer information and correspondence prior to imposition of the failure to register as a tax preparer penalty. The process has shown an increase in failure to register penalties imposed with an 85% increase since the 2012/13 season.

Current process requires the FTB to verify, based on the information available that an unlawful tax preparer is not otherwise exempt from CTEC registration as an attorney, CPA, EA, or other exempt entity. When the FTB is unable to identify the individual or entity as exempt from registration, the FTB will send a first notice and a second notice before imposing the penalty to ensure that unlawful tax preparers can respond with their exempt information or comply with the registration requirement by registering with CTEC before the penalty will be imposed. The penalty for failing to register is $2,500 for the first failure and $5,000 for each subsequent failure. These penalties are deposited in the General Fund. The FTB expends time and resources to confirm tax preparer activity, confirming the identity of the tax preparers, and identification of exempt tax preparers.

Senate Bill 484 (Wyland) went into effect on January 1, 2014, giving CTEC the legislative authority to deregister preparers. The bill required CTEC to notify the FTB that a registration is suspended or revoked. As of the 2017/2018 season, the tax preparers that have been deregistered by CTEC will be pursued, if necessary, through the FTB’s enforcement process. The bill also gave CTEC the authority to deny an application for registration or discipline a current registrant who has been convicted of a crime “substantially related to the qualifications, functions, or duties of a registrant.”

Current Related Legislation. AB 3141 (Assembly Committee on Business and Professions) is the sunset vehicle for the Bureau of Automotive Repair.

AB 3142 (Assembly Committee on Business and Professions) is the sunset vehicle for the California Acupuncture Board.

AB 3144 (Assembly Committee on Business and Professions) is the sunset vehicle for the Professional Fiduciaries Bureau.

Prior Related Legislation. SB 1243 (Lieu, Chapter 395, Statutes of 2014) extended the sunset date for CTEC from January 1, 2015 to January 1, 2019.

SB 484 (Wyland, Chapter 660, Statutes of 2013) revised the composition of CTEC, authorized CTEC to deny, suspend, or revoke a tax preparer registration for specified violations, and made other related changes to the Tax Preparers Law.

ARGUMENTS IN SUPPORT:

The California Society of Enrolled Agenda (CSEA) supports the bill. Enrolled Agents represented by CSEA are generally exempt from CTEC’s registration requirements, and CSEA points out that “as an active part of California’s tax ecosystem, CSEA has a seat on the CTEC Advisory Council.” CSEA states that it supports CTEC’s mission, and that “CTEC provides a valuable consumer protection, ensuring that tax preparers who are not federally-licensed meet a minimum level of training.”

United Ways of California (UWCA) has a “Support if Amended” position on the bill. UWCA has requested that a number of recommended reforms to CTEC be incorporated into the bill governing how CTEC-registered tax preparers interact with consumers. UWCA states that these amendments would “help protect low-income filers from fraudulent or predatory practices.” UWCA requests that transparency be improved by requiring tax preparers to disclose information relating to their fees to consumers as well as the FTB. UWCA also requests that CTEC establish “a public database of formal complaints so that consumers can compare registered tax preparers,” stating that “the complaint database can help taxpayers learn from each other’s experiences and allow the FTB to identify issues and intervene when necessary.” UWCA also believes that CTEC should consider incorporating a standardized exam into its registration requirements. UWCA further believes the definition of individuals and entities exempt from registration should be clarified to state that an employee of an exempt tax preparer must occupy the same physical office. Finally, UWCA believes that “the FTB should have the enforcement power to address misconduct regarding actual tax preparation” and not merely enforce the state’s registration requirement generally.

ARGUMENTS IN OPPOSITION:

None on file.

POLICY ISSUE(S) FOR CONSIDERATION:

Several issues were raised in CTEC’s sunset review background paper. These issues may be considered for future reform to statutes governing CTEC’s registration of paid tax preparers.

These issues include:

• Issue #1: Should enforcement penalties collected by the FTB be deposited in a manner that would allow CTEC to utilize revenue from fines to invest in further enforcement efforts against unregistered tax preparers?
• Issue #2: Is the current structure of CTEC’s Board of Directors problematic in the context of recent caselaw regarding liabilities for anticompetitive activity by regulatory bodies?
• Issue #3: Does CTEC’s nonprofit status render it inappropriately inapplicable to various laws aimed at increasing the transparency and accountability of entities conducting business on behalf of the public?
• Issue #4: Should CTEC have the authority to request and receive criminal history information and subsequent arrest notification for registration applicants and active CRTPs?

At this time, none of the aforementioned sunset review issues have been incorporated into any language for CTEC’s sunset review vehicle. The bill currently only includes provisions extending CTEC’s sunset until 2023. Any subsequent reforms made to CTEC through this legislation will be achieved through collaboration with the Senate Committee on Business, Professions and Economic Development and other stakeholders.

REGISTERED SUPPORT:

California Society of Enrolled Agents

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301