Practice privilege: CalCPA-supported AB 1868 amended.

• Author: Allen, Bruce C.
• Position: Governmentrelations

CalCPA is sponsoring AB 1868 (Bermudez), which would make substantial corrections to California's practice privilege statute that went into effect Jan. 1, 2006.

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The bill is supported by the California Board of Accountancy and until it was amended, the Center for Public Interest Law, Consumers Union and the California Attorney General aggressively opposed the bill. They were concerned that the legislation would allow the sale or promotion of abusive tax shelters to Californians with impunity.

Nothing could be further from the truth. Abusive tax shelters are illegal under federal and California law.

As proposed, AB 1868 would have allowed out-of-state CPAs to perform tax services for California business clients without obtaining a practice privilege or license from the CBA--as long as the CPA did not physically enter California or solicit California clients.

The exemption would have been in place through Jan. 1, 2011, so that a long-term solution to practice privilege issues could be worked out without impacting state taxpayers.

Interpretation of California's current practice privilege statute would require an out-of-state CPA performing tax services for a business headquartered in another state, but having some physical presence in California, to register with the CBA to provide those services.

This is an overly broad interpretation, that if adopted by other states, could require CPAs to register in all states where their clients have operations.

CalCPA agreed to the removal of the exemption for tax services and instead language was inserted in the bill to encourage the CBA to adopt a lower fee to obtain a practice privilege for those out-of-state CPAs providing tax services to California businesses.

With that amendment, all opposition to the bill was dropped and it is anticipated that it will be enacted in August.

CPAs who provide tax preparation services to individuals or estates will not be required to notify the CBA of their activities as long as the estate relates to an individual who was a client at the time of death.

AB 1868 will allow CPAs to provide other services in California through practice privilege without requiring that the firm be fully licensed in California.

As envisioned, California's practice privilege statute would allow for ease of movement across state lines and increase consumer protection by allowing the CBA to know which out-of-state CPAs were providing services to California clients.

As...