[We begin with a preface that the discussion in this post is based upon the law in California. However, every state has similar statutes]
Exempt CTEC and from CA Accountancy Act?
Role of Non-CPA – IS LIMITED AND FOR GOOD REASON. If a person is NOT A CPA in California, they could be:
an Enrolled Agent and subject regulation under Circular 230
a CTEC in California
Listed in Directory of Federal Tax Return Preparers with Credentials and Select Qualifications
If a person isn’t listed in one of those locations, then the restriction that applies to them under CA Accountancy Act 5051 is:
a person shall be deemed to be engaged in the practice of public accountancy within the meaning and intent of this chapter if he or she does any of the following:
(a) Holds himself or herself out to the public in any manner as one skilled in the knowledge, science, and practice of accounting, and as qualified and ready to render professional service therein as a public accountant for compensation.
(b) Maintains an office for the transaction of business as a public accountant.
© Offers to prospective clients to perform for compensation, or who does perform on behalf of clients for compensation, professional services that involve or require an audit, examination, verification, investigation, certification, presentation, or review of financial transactions and accounting records.
(d) Prepares or certifies for clients reports on audits or examinations of books or records of account, balance sheets, and other financial, accounting and related schedules, exhibits, statements, or reports that are to be used for publication, for the purpose of obtaining credit, for filing with a court of law or with any governmental agency, or for any other purpose.
(e) In general or as an incident to that work, renders professional services to clients for compensation in any or all matters relating to accounting procedure and to the recording, presentation, or certification of financial information or data.
(f) Keeps books, making trial balances, or prepares statements, makes audits or prepares reports, all as a part of bookkeeping operations for clients.
(g) Prepares or signs, as the tax preparer, tax returns for clients.
(h) Prepares personal financial or investment plans or provides to clients products or services of others in the implementation of personal financial or investment plans.
(i) Provides management consulting services to clients
The activities set forth in subdivisions (f) to (i), inclusive, are “public accountancy” only when performed by a certified public accountant or public accountant, as defined in this chapter.
A person is not engaged in the practice of public accountancy if the only services he or she engages in are those defined by subdivisions (f) to (i), inclusive, and he or she does not hold himself or herself out, solicit, or advertise for clients using the certified public accountant or public accountant designation.
There are two additional exceptions provided for:
Sec 5052 states:
Nothing in this chapter shall apply to any person who as an employee, independent contractor, or otherwise, contracts with one or more persons, organizations, or entities, for the purpose of keeping books, making trial balances, statements, making audits or preparing reports, all as a part of bookkeeping operations, provided that such trial balances, statements, or reports are not issued over the name of such person as having been prepared or examined by a certified public accountant or public accountant.
Sec. 5053 states:
Nothing contained in this chapter precludes a person who is not a certified public accountant or public accountant from serving as an employee of, or an assistant to, a certified public accountant or public accountant or partnership or a corporation composed of certified public accountants or public accountants holding a permit to practice pursuant to this chapter if the employee or assistant works under the control and supervision of a certified public accountant, or a public accountant authorized to practice public accountancy pursuant to this chapter and if the employee or assistant does not issue any statement over his or her name.
Finally, there is a catch-all if an individual is employed or affiliated with an out-of-state firm in Sec. 5054 which states:
Notwithstanding any other provision of this chapter, an individual or firm holding a valid and current license, certificate, or permit to practice public accountancy from another state may prepare tax returns for natural persons who are California residents or estate tax returns for the estates of natural persons who were clients at the time of death without obtaining a permit to practice public accountancy issued by the board under this chapter or a practice privilege pursuant to Article 5.1 (commencing with Section 5096) provided that the individual or firm does not physically enter California to practice public accountancy pursuant to Section 5051, does not solicit California clients, and does not assert or imply that the individual or firm is licensed or registered to practice public accountancy in California.
(b) The board may, by regulation, limit the number of tax returns that may be prepared pursuant to subdivision (a).
**The lookup for individual CPA’s in California is located here, **.
If a person is not a CPA, attorney, or Enrolled Agent [e.g. a Circular 230 Practitioner, then the following applies for CTEC’s
Registered: Registered status indicates the individual has completed the annual registration requirements by completing the required education and maintaining a $5,000 tax preparer bond. Registered individuals are compliant with the California Business & Professions Code, Section 22250-22259, and are able to prepare taxes for a fee in California.
Just as a reminder, an individual preparing taxes for a fee may also be a CPA (www.dca.ca.gov/cba), an Enrolled Agent (www.irs.gov), or an attorney (www.calbar.ca.gov). You may wish to check the websites indicated to be sure the individual in question is not a CPA, EA or attorney, and, therefore, exempt from registering with CTEC. If you have any questions or concerns feel free to contact CTEC.
The penalty for being a NON-COMPLIANT preparer in California is:
As of January 1, 2005, the California Franchise Tax Board (FTB) has the authority to identify and penalize unregistered tax preparers.“Failure to register as a tax preparer with the California Tax Education Council, as required by section 22253 of the Business and Professions Code, unless it is shown that the failure was due to reasonable cause and not due to willful neglect.
(1) The amount of the penalty under this subdivision for the first failure to register is two thousand five hundred dollars ($2,500). This penalty shall be waived if proof of registration is provided to the Franchise Tax Board within 90 days from the date notice of the penalty is mailed to the tax preparer.
(2) The amount of the penalty under this subdivision for a failure to register, other than the first failure to register, is five thousand dollars ($5,000).”
Consumers can report unregistered tax preparers by filling out the Noncompliant Complaint Form through CTEC’s website. All reports are kept confidential. Now for the little quiz……let’s assume that a CPA Firm that possibly has NON-PROFESSIONALS….which is much more egregous than non-CPA’s doing work covered by the CA Accountancy Act, Circular 230 and CA CTEC has a map on their website showing the places the “do business” to include:
How do they manage not to register under ANY of the requirements listed above?
Assuming that the speculation about not being registered is correct, is that REALLY an operational model that should be receiving accolades on a website which provides CPE for accounting and tax professionals [or more correctly since many of those involved aren’t professionals] generic “accountants and bookkeepers”?
If the speculation is correct, some may think it doesn’t matter….we don’t agree, and would suggest that IRS OPR, CA FTB, and CA CTEC should have serious concerns about their rules being openly flouted undermines the entire system, and is unfair to every single CPA, EA, and CTEC that does the “right thing” and plays by the rules.