Delinquent Taxes?
California CPA magazine: August 2008
No License AB 1925, SB 1689 and NASBA
Sometimes success in Sacramento can best be gauged by what doesn’t happen. AB 1925 (Eng) would have expanded the authority of the Franchise Tax Board to suspend all Occupational and Professional Licenses due to unpaid tax liabilities. Existing law, established in 1990, allows the Contractor’s State License Board to refuse to issue, reinstate, renew or reactivate a contractor’s license if he or she does not resolve all outstanding tax liabilities. When this action is taken, anyone listed on the contractor’s license is prohibited from operating as a contractor. Additionally, current law allows licensing boards to suspend or deny renewal to individuals who fail to pay child support based on a referral from local child support agencies.
The Franchise Tax Board estimates that 25,000 licensees are currently delinquent in paying taxes. The proposed license suspension would be automatic following completion of all of the current steps to collect, and a 60-day preliminary notice of license suspension. The license suspension period would continue until the tax is collected or the taxpayer files a hardship appeal and enters into a payment program.
Opponents successfully argued during a hearing for AB 1925 that the license suspension would deprive affected individuals of the ability to ever pay their taxes. The FTB argued that AB 1925 would remove the unfair competitive advantage that is gained by those businesses that do not report and pay the correct amount of tax and that AB 1925 would be an effective collection tool that would generate $13 million a year if implemented. AB 1925 was defeated in the Senate Revenue and Taxation Committee on June 25, but reconsideration was granted so it could resurface.
Redevelopment Agency Audits
SB 1689 (Lowenthal) is a major re-write of redevelopment agency (RDA) audit laws. The bill expands the authority of the Department of Housing and Community Development to review audit reports and make referrals to the Controller and the state Attorney General. The bill would allow the Controller to perform quality control reviews of the audits performed for RDAs.
The authority is very similar to that currently allowed for audits of school districts. The Controller would refer substandard audit reports to the California Board of Accountancy and, if the CBA agrees with the Controller and the Department of Housing and Community Development, the auditor would be prohibited from conducting audits of RDAs for up to three years and could be subject to additional discipline.
After conducting two consecutive quality control reviews, if the Controller determines that the CPA did not perform the audit in substantial conformity with the provisions of the audit report guidelines, the Controller must notify the CPA and CBA. Originally, the bill allowed the Controller to unilaterally bar auditors from performing redevelopment agency audits for up to three years, but that provision was eliminated.
SB 1689 was introduced at the request of the Housing and Community Development Department, which currently reviews RDA’s annual reports and audits. The HCD claims to find violations that the independent auditor misses. CPAs performing redevelopment agency audits are advised to pay special attention to the audit requirements for these agencies especially those related to analyzing the housing-related requirements of Community Redevelopment law. An audit guide is posted online at the Controller’s website at www.sco.ca.gov. It should be noted that this audit guide has not been updated since 1998. At press time, the bill was in the Assembly Appropriations Committee and it remains on CalCPA’s priority one list.
Federal Referral Program
The National Association of State Boards of Accountancy, which is composed of current and former state board of accountancy members, has a Governmental Agency Referral Task Force that is tasked with improving state board follow-up on complaint referrals from federal agencies. At its Western Regional meeting in California, it was reported that NASBA representatives had met with a number of federal agencies to offer them assistance in ensuring that the appropriate state board of accountancy pursue complaints involving the performance of individual CPAs.
NASBA reported some success in ensuring that the federal agencies were providing sufficient information to the boards of accountancy, so that complaints could be pursued. The task force has developed a procedure for the referral of federal complaints to state boards that requires the federal agency to file the complaint first with NASBA so that NASBA can track the referral’s status. NASBA also is developing a strategy to assist state boards with enforcement issues such as providing training for enforcement personnel or providing personnel for technical assistance.
Bruce C. Allen is CalCPA’s division director of government relations.
