Senate Study Bill 3151 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON FEENSTRA) A BILL FOR An Act creating the tax return preparer oversight Act to 1 establish a tax return preparer oversight board to regulate 2 tax return preparers, modifying the powers and duties of the 3 director of revenue, and providing penalties. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5649XC (3) 87 mm/jh

S.F. _____ Section 1. Section 421.17, Code 2018, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 35. To make state individual income tax 3 returns and related tax information available to the tax return 4 preparer oversight board for purposes of the administration and 5 enforcement of chapter 421D. The department of revenue and the 6 tax return preparer oversight board may exchange information in 7 a manual and automated fashion. The department of revenue, in 8 cooperation with the tax return preparer oversight board, may 9 adopt rules, if necessary, to implement this subsection. The 10 sharing of information by the department of revenue with the 11 tax return preparer oversight board pursuant to this subsection 12 shall not be deemed a violation of the confidentiality 13 provisions of sections 422.20 and 422.72. 14 Sec. 2. NEW SECTION . 421D.1 Short title. 15 This chapter shall be known and may be cited as the “Tax 16 Return Preparer Oversight Act” . 17 Sec. 3. NEW SECTION . 421D.2 Definitions. 18 For purposes of this chapter and unless otherwise required 19 by the context: 20 1. “Board” means the tax return preparer oversight board. 21 2. “Client” means a person for whom a tax return preparer 22 performs or agrees to perform tax return preparation. 23 3. “Enrolled agent” means an agent enrolled to practice 24 before the federal internal revenue service pursuant to 31 25 C.F.R. §10.4. 26 4. “Tax return” means any return, declaration, refund, 27 claim, or other document required to be made or filed in 28 connection with local, state, or federal income taxes. 29 5. a. “Tax return preparer” means any of the following: 30 (1) An individual who, for a fee or other consideration, 31 prepares or assists with the preparation of five or more tax 32 returns for clients during a calendar year or who assumes 33 final responsibility for completed work on such tax returns on 34 which preliminary work has been done by another individual, 35 -1- LSB 5649XC (3) 87 mm/jh 1/ 15

S.F. _____ or an individual who holds himself or herself out as offering 1 services described in this subparagraph. 2 (2) A corporation, partnership, association, or other 3 entity that associates with or employs individuals described in 4 subparagraph (1) of this paragraph “a” , unless such association 5 or employment is unrelated to the individual’s tax return 6 preparation services. 7 b. “Tax return preparer” does not include any of the 8 following: 9 (1) An individual licensed as a certified public accountant 10 under chapter 542 or a similar law of another state, including 11 an employee of that individual while functioning within the 12 employee’s scope of employment if the employee does not sign 13 tax returns. 14 (2) An individual admitted to practice law in this state or 15 another state, including an employee of that individual while 16 functioning within the employee’s scope of employment if the 17 employee does not sign tax returns. 18 (3) A fiduciary of an estate, trust, or individual, while 19 functioning within the fiduciary’s legal duty and authority 20 with respect to that individual, or that estate or trust or its 21 testator, trustor, grantor, or beneficiaries, and including 22 an employee of that fiduciary while functioning within the 23 employee’s scope of employment if the employee does not sign 24 tax returns. 25 (4) An individual who prepares the tax returns of 26 the individual’s employer, while functioning within the 27 individual’s scope of employment with the employer. 28 (5) An individual employed by a local, state, or federal 29 government agency, while functioning within the individual’s 30 scope of employment with the government agency. 31 (6) An employee of a person described in paragraph “a” , 32 subparagraphs (1) and (2), if the employee provides only 33 clerical or other comparable services. 34 Sec. 4. NEW SECTION . 421D.3 Board creation and composition. 35 -2- LSB 5649XC (3) 87 mm/jh 2/ 15

S.F. _____ 1. A tax return preparer oversight board is created 1 consisting of five members appointed by the governor and 2 subject to confirmation by the senate. Four members of the 3 board shall be individuals who have been tax return preparers 4 for not less than five years prior to appointment. One member 5 shall be a public member who is not a tax return preparer. 6 2. a. For the initial appointments, the terms of office 7 shall be as follows: 8 (1) One member shall serve a term of one year. 9 (2) One member shall serve a term of two years. 10 (3) One member shall serve a term of three years. 11 (4) One member shall serve a term of four years. 12 (5) The public member shall serve a term coterminous with 13 the governor. 14 b. For all succeeding appointments, each member other than 15 the public member shall be appointed to serve a term of four 16 years and each public member shall serve a term coterminous 17 with the governor. 18 c. A member shall not serve more than two terms or eight 19 years, whichever is less, on the board. 20 3. Each member shall serve until such time as the successor 21 member has been appointed. 22 4. A vacancy on the board shall be filled by the governor in 23 the manner provided for regular appointments and shall be for 24 the remainder of the unexpired term. 25 5. Members shall qualify by taking the regular oath of 26 office as prescribed by law for state officers. 27 6. Members shall serve without compensation but shall be 28 allowed their necessary travel and expenses incurred in the 29 performance of official duties. 30 7. Members serve at the pleasure of the governor. 31 8. The board shall establish rules of procedure which shall 32 include but not be limited to the following guidelines: 33 a. The annual election of a chair and such other officers as 34 deemed necessary. 35 -3- LSB 5649XC (3) 87 mm/jh 3/ 15

S.F. _____ b. A quorum of at least three members shall be required to 1 conduct business. 2 c. The board shall meet at least four times annually. 3 d. The board shall comply with chapter 17A, chapter 21, and 4 such other relevant statutory provisions applicable to boards, 5 commissions, and committees. 6 9. Information made available to the board by the department 7 of revenue pursuant to section 421.17, subsection 35, shall be 8 subject to the confidentiality provisions in sections 422.20 9 and 422.72 to the same extent as such information is subject 10 to those confidentiality provisions while in the possession of 11 the director of revenue. 12 10. Members of the board shall not be held personally liable 13 for actions taken under this chapter while acting in good faith 14 and in a reasonable manner. 15 Sec. 5. NEW SECTION . 421D.4 Board powers and duties. 16 The board shall have the following powers and duties: 17 1. To determine qualifications for registration as a tax 18 return preparer, to develop and administer the examination 19 for registration as a tax return preparer, and to issue 20 registrations to qualified applicants. In developing the 21 examination for registration as a tax return preparer, the 22 board may utilize, in whole or in part, any examination 23 approved by the federal internal revenue service, or any state 24 board or authority responsible for the licensing or regulation 25 of accountants, tax practitioners, or attorneys. 26 2. To develop and administer forms for use in implementing 27 the provisions of this chapter, including but not limited to 28 forms for initial registration and renewal registration of tax 29 return preparers. 30 3. To issue reports and to make recommendations to the 31 governor and general assembly on matters pertaining to the 32 regulation of tax return preparers. 33 4. To adopt rules for implementation of this chapter, to 34 provide for the protection of clients, and to assist tax return 35 -4- LSB 5649XC (3) 87 mm/jh 4/ 15

S.F. _____ preparers in interpreting this chapter. Such rules shall 1 include but not be limited to the following: 2 a. Developing and administering examinations required for 3 registration as a tax return preparer. 4 b. The renewal of a tax return preparer registration, 5 the selecting of inactive status of a registration and the 6 reactivation of that registration, and the reinstatement of a 7 tax return preparer who fails to renew a registration for any 8 reason if the tax return preparer is otherwise entitled to be 9 registered. 10 c. Adoption of rules of professional conduct for tax return 11 preparers. 12 d. After consultation with the department of administrative 13 services, the adoption of reasonable fees for all of the 14 following that are sufficient to offset the expenses incurred 15 in the administration of the activity for which the fee is 16 established: 17 (1) Application for examination for a tax return preparer 18 registration. 19 (2) Issuance or renewal of a tax return preparer 20 registration. 21 (3) Issuance or renewal of an inactive tax return preparer 22 registration. 23 (4) Reactivation of an inactive tax return preparer 24 registration. 25 (5) Restoration of a lapsed tax return preparer 26 registration. 27 (6) Issuance of a duplicate or replacement of a lost tax 28 return preparer registration. 29 5. To establish a fund within the state treasury under 30 the control of the board. Moneys deposited in or accruing 31 to such fund are appropriated to the board for purposes of 32 administering this chapter. Notwithstanding section 12C.7, 33 subsection 2, interest or earnings on moneys in the fund shall 34 be credited to the fund. Notwithstanding section 8.33, moneys 35 -5- LSB 5649XC (3) 87 mm/jh 5/ 15

S.F. _____ credited to the fund that remain unexpended or unobligated at 1 the end of a fiscal year shall not revert to any other fund. 2 All fees, penalties, and fines imposed and collected by the 3 board shall be deposited in the fund. 4 6. To employ and discharge personnel as necessary, 5 prescribe their duties and powers, and fix their compensation. 6 7. To administer oaths, hold hearings, and take testimony 7 about matters within the jurisdiction of the board. 8 8. To issue subpoenas for the attendance of witnesses to 9 testify or the production of evidence in connection with a 10 disciplinary action brought under this chapter or a proceeding 11 brought for an alleged violation of this chapter, and to 12 petition courts of competent jurisdiction to compel compliance 13 with subpoenas. 14 9. a. Except as provided in paragraph “b” , to investigate 15 all complaints that allege a violation of this chapter. If the 16 complaint involves an enrolled agent, a copy of the complaint 17 and the findings of the board shall be forwarded to the federal 18 internal revenue service office of professional responsibility, 19 unless the complaint is determined to be without merit. 20 b. (1) If the complaint involves an individual or firm 21 governed by the Iowa accountancy examining board under chapter 22 542, or a similar board in another jurisdiction, the complaint 23 shall be immediately forwarded to that board. 24 (2) If the complaint involves an attorney admitted to 25 practice law in this state or in another jurisdiction, the 26 complaint shall be immediately forwarded to the Iowa supreme 27 court or to the equivalent attorney governing body of the other 28 jurisdiction, as applicable. 29 10. The board may by rule establish and impose penalties 30 upon tax return preparers for violations of section 421D.8, 31 subsection 3, paragraphs “i” , “j” , “k” , “l” , “m” , and “n” . 32 Such penalties shall be in addition to any other penalties 33 imposed by the board, the department of revenue, or the federal 34 internal revenue service. 35 -6- LSB 5649XC (3) 87 mm/jh 6/ 15

S.F. _____ 11. The lapse, suspension, or revocation of a tax return 1 preparer registration under this chapter by operation of law or 2 by order of the board or a court, or the voluntary surrender of 3 such a registration by a tax return preparer, shall not deprive 4 the board of jurisdiction or authority to proceed with any 5 investigation or other action against the tax return preparer, 6 nor shall it revise or render void any previous action by the 7 board against the tax return preparer. 8 Sec. 6. NEW SECTION . 421D.5 Administrative remedies —— 9 civil penalties. 10 1. The board on the affirmative vote of a majority of the 11 members may deny registration to any applicant registering as 12 a tax return preparer, reprimand any tax return preparer, or 13 suspend or revoke the registration of any tax return preparer 14 if the tax return preparer does any of the following: 15 a. Fails to meet the qualifications for registration as a 16 tax return preparer under section 421D.7. 17 b. Violates any provision of this chapter or the rules 18 adopted by the board, or knowingly aids or abets another person 19 in violating any provision of this chapter or the rules adopted 20 by the board. 21 c. Is convicted of a misdemeanor or felony directly related 22 to the tax return preparer’s fitness and qualification to 23 provide tax return preparation services. 24 d. Is guilty of negligence, incompetence, or misconduct 25 while providing services as a tax return preparer. 26 2. Except as otherwise provided in this chapter, before 27 the board takes any final action to deny, suspend, or revoke a 28 registration or to reprimand a tax return preparer, the board 29 shall give the person an opportunity for a hearing before the 30 board in accordance with chapter 17A. 31 3. The board, after a hearing and upon a finding that a 32 violation of this chapter or the rules adopted by the board has 33 occurred, may do one or more of the following: 34 a. Issue an order requiring the person to cease and desist 35 -7- LSB 5649XC (3) 87 mm/jh 7/ 15

S.F. _____ from the violation found. 1 b. Seek an injunction against the person pursuant to section 2 421D.6. 3 c. Deny, suspend, or revoke the registration of the person. 4 d. Assess costs incurred by the board against the person. 5 e. Assess a civil penalty not to exceed ten thousand dollars 6 against the person for any such violation. 7 Sec. 7. NEW SECTION . 421D.6 Civil action. 8 1. The board may commence a civil action against a person to 9 do any of the following: 10 a. Enjoin a person from violating any provision of this 11 chapter. 12 b. Enjoin a person who has violated or is violating any 13 provision of this chapter, or the employer of that person 14 having knowledge of such violations, from further engaging in 15 the preparation of tax returns. 16 2. The Iowa district court shall have jurisdiction over 17 actions brought under this section and may grant appropriate 18 relief. 19 Sec. 8. NEW SECTION . 421D.7 Registration of tax return 20 preparers. 21 1. a. On or after January 1, 2019, a tax return preparer 22 shall not, for a fee or other consideration, prepare or assist 23 with the preparation of five or more tax returns for clients 24 during a calendar year, or assume final responsibility for 25 completed work on such tax returns on which preliminary work 26 has been done by another individual, or shall not hold the tax 27 return preparer out as offering such tax return preparation 28 services, unless the tax return preparer meets the requirements 29 of paragraph “b” or “c” , as applicable, and registers with the 30 board in the manner and form prescribed by the board. 31 b. For an individual to be eligible to register as a tax 32 return preparer under this subsection, the applicant shall 33 fulfill all of the following requirements: 34 (1) The applicant shall submit a complete application to the 35 -8- LSB 5649XC (3) 87 mm/jh 8/ 15

S.F. _____ board in the manner and form prescribed by the board. 1 (2) The applicant shall have completed the required number 2 of hours of instruction, as determined by the board, in basic 3 personal income tax law, theory and practice, and ethics from a 4 provider approved by the board. 5 (3) The applicant shall be at least eighteen years of age. 6 (4) The applicant shall be of good moral character as 7 determined by the board. 8 (5) The applicant shall agree in writing to comply with the 9 rules of professional conduct adopted by the board. 10 (6) The applicant shall pay a registration fee, the amount 11 of which shall be determined by the board. 12 (7) The applicant shall pass a tax return preparer 13 examination. The following individuals shall be exempt from 14 the examination requirement in this subparagraph: 15 (a) An individual who is accredited by and in good standing 16 with the accreditation council for accountancy and taxation, 17 inc., as an accredited business accountant/advisor, an 18 accredited tax advisor, or an accredited tax preparer. 19 (b) An individual who is an enrolled agent in good standing 20 with the federal internal revenue service. 21 c. For a corporation, partnership, association, or other 22 entity to be eligible to register as a tax return preparer 23 under this subsection, the applicant shall fulfill all of the 24 following requirements: 25 (1) The applicant shall submit a complete application to the 26 board in the manner and form prescribed by the board. 27 (2) Each principal of the entity shall agree in writing that 28 the principals and the entity will comply with the rules of 29 professional conduct adopted by the board. 30 (3) The applicant shall pay a registration fee, the amount 31 of which shall be determined by the board. 32 2. a. Registration under subsection 1 shall be valid for a 33 period of two years and may be renewed as provided in paragraph 34 “b” . Each renewal shall be valid for a period of two years. 35 -9- LSB 5649XC (3) 87 mm/jh 9/ 15

S.F. _____ b. For an individual to be eligible to renew registration, 1 the applicant shall successfully complete annual continuing 2 education requirements that are equivalent to the continuing 3 education requirements for registered tax return preparers 4 described in 31 C.F.R. §10.6, and shall pay a renewal fee, 5 the amount of which shall be determined by the board. For a 6 corporation, partnership, association, or other entity to be 7 eligible to renew registration, the applicant shall comply with 8 subsection 1, paragraph “c” , subparagraph (1), and shall pay 9 a renewal fee, the amount of which shall be determined by the 10 board. 11 3. A person who fails to timely renew registration as 12 determined by the board shall not be allowed reinstatement 13 unless the person pays a reinstatement fee, the amount of which 14 shall be determined by the board. 15 4. A person whose registration is on inactive status shall 16 not be allowed reinstatement to active status unless the 17 person pays a reactivation fee, the amount of which shall be 18 determined by the board. 19 5. Unless a foreign tax return preparer has a valid 20 registered agent for service of process in this state on file 21 with the secretary of state, that foreign tax return preparer, 22 by acting as a tax return preparer in this state, appoints 23 the secretary of state as the tax return preparer’s agent for 24 service of process in any civil action related to the tax 25 return preparer’s acting as a tax return preparer in this 26 state. For purposes of this subsection, “foreign tax return 27 preparer” means a tax return preparer that is a nonresident 28 individual or an entity whose commercial domicile is not in 29 this state. 30 Sec. 9. NEW SECTION . 421D.8 Responsibilities of tax return 31 preparers —— prohibitions —— violations —— criminal penalties. 32 1. A tax return preparer shall have the affirmative 33 responsibility to act in the best interests of the tax 34 return preparer’s client and in accordance with the rules of 35 -10- LSB 5649XC (3) 87 mm/jh 10/ 15

S.F. _____ professional conduct adopted by the board under this chapter. 1 2. A tax return preparer shall conspicuously display at the 2 tax return preparer’s place of business the documentation of 3 registration under this chapter in accordance with the rules 4 adopted by the board. 5 3. On or after January 1, 2019, it shall be a violation 6 of this section for a tax return preparer to do any of the 7 following: 8 a. Fail to register as a tax return preparer with the board. 9 b. Act as a tax return preparer while the tax return 10 preparer’s registration is inactive, revoked, or lapsed. 11 c. Fraudulently or deceptively obtain or attempt to obtain 12 a registration as a tax return preparer. 13 d. Fraudulently or deceptively claim to be a registered tax 14 return preparer. 15 e. Make or authorize the making of any fraudulent, untrue, 16 or misleading statement or representation, oral or written or 17 recorded by any means, that is intended to induce a person to 18 use the tax preparation service of the tax return preparer. 19 f. Obtain the signature of a client on a tax return or 20 authorizing document that has not been fully completed in 21 accordance with the official instructions of the tax return. 22 g. Knowingly give false or misleading information to the 23 board or to a client. 24 h. Violate the rules of professional conduct adopted by the 25 board. 26 i. Fail without reasonable cause to sign a client’s tax 27 return if payment for services rendered has been made. 28 j. Fail without reasonable cause to maintain for at least 29 three years copies of all tax returns prepared by the tax 30 return preparer, fail to make such records available to the 31 client during the three-year period, or fail to present a 32 completed tax return to the client not later than the time such 33 tax return is presented for such client’s signature. 34 k. Prepare, aid or assist, procure, or advise with respect 35 -11- LSB 5649XC (3) 87 mm/jh 11/ 15

S.F. _____ to an understatement of liability for a client that causes 1 the tax return preparer to be subject to penalties imposed 2 under section 6694 or 6701 of the Internal Revenue Code, or 3 would cause the tax return preparer to be subject to such 4 penalties if those sections applied to the taxes imposed under 5 chapter 422. For purposes of the taxes imposed under chapter 6 422, “understatement of liability” means any understatement of 7 the net amount payable with respect to any tax imposed under 8 chapter 422 or any overstatement of the net amount creditable 9 or refundable with respect to any such tax. The determination 10 of whether there is an understatement of liability must be 11 made without regard to any administrative or judicial action 12 involving the tax return preparer. 13 l. Violate section 6695(e), 6695(g), or 6700 of the Internal 14 Revenue Code. 15 m. Fail without reasonable cause to include on each tax 16 return prepared by the tax return preparer an identifying 17 number as may be provided by the board for securing the proper 18 identification of the tax return preparer, the tax return 19 preparer’s employer, or both. 20 n. Endorse or otherwise negotiate, directly or through an 21 agent, any check made in respect of the tax that is the subject 22 of a tax return that is issued to a person other than the tax 23 return preparer. This paragraph shall not apply with respect 24 to the deposit by a bank of the full amount of the check in the 25 person’s account in such bank for the benefit of the person. 26 o. Violate any other provision of this section or section 27 421D.7, or the rules adopted by the board relating to this 28 subchapter. 29 4. On or after January 1, 2019, a person shall not assume 30 or use the title or designation “tax return preparer”, or 31 assume or use any other title, designation, word, letter, 32 abbreviation, sign, card, or device tending to indicate 33 such person is a tax return preparer, unless the person is 34 registered under section 421D.7 or is a person described in 35 -12- LSB 5649XC (3) 87 mm/jh 12/ 15

S.F. _____ section 421D.2, subsection 5, paragraph “b” . 1 5. A violation of this section is a simple misdemeanor. In 2 addition to any other applicable penalties, a court may order a 3 person to pay restitution for any damages caused in violating a 4 provision of this section. 5 EXPLANATION 6 The inclusion of this explanation does not constitute agreement with 7 the explanation’s substance by the members of the general assembly. 8 This bill creates the tax return preparer oversight Act in 9 new Code chapter 421D and establishes a tax return preparer 10 oversight board (board) to regulate tax return preparers. The 11 bill also makes a corresponding amendment to the powers and 12 duties of the director of revenue. 13 BOARD. The bill includes provisions relating to the 14 creation, composition, and operation of the board and 15 prescribes numerous powers and duties of the board relating 16 to its regulation of tax return preparers, including but not 17 limited to the registration of such persons, creation of forms 18 and exams, adoption of administrative rules, adoption of rules 19 of professional conduct for tax return preparers, employment 20 of personnel, establishment of fees and penalties, and the 21 investigation and enforcement of violations. The board is 22 authorized to establish a fund under its control and to retain 23 all fees, penalties, and fines it imposes and collects. 24 The bill also modifies the powers and duties of the director 25 of revenue to provide that the director shall make state 26 individual income tax returns and related tax information 27 available to the board for purposes of administration and 28 enforcement of new Code chapter 421D, and provides that 29 the sharing of such information is not a violation of the 30 confidentiality provisions of Code sections 422.20 and 422.72. 31 TAX RETURN PREPARERS. On or after January 1, 2019, tax 32 return preparers are required to register with the board and 33 comply with the provisions in the bill. “Tax return preparer” 34 is defined in the bill to generally include individuals 35 -13- LSB 5649XC (3) 87 mm/jh 13/ 15

S.F. _____ who prepare five or more tax returns in a calendar year and 1 corporations or other entities that associate with or employ 2 such individuals. Certified public accountants, attorneys, 3 and certain other fiduciaries and individuals are excluded 4 from the definition. The bill prescribes several requirements 5 that must be met in order to be eligible to register as a 6 tax return preparer, including but not limited to paying a 7 registration fee, being at least 18 years old and of good 8 moral character, agreeing in writing to comply with rules 9 of professional conduct adopted by the board, completing 10 certain tax law training as determined by the board, and 11 passing of an examination approved by the board. Enrolled 12 agents as designated by the internal revenue service (IRS) 13 and certain other accredited tax advisors as described in the 14 bill are exempt from the examination requirement. The bill 15 provides that registration as a tax return preparer is valid 16 for two years, and then must be renewed. In order to renew 17 registration, individual tax return preparers must complete 18 certain continuing education requirements as described in the 19 bill that are similar to continuing education requirements for 20 tax return preparers established by the IRS. 21 The bill provides for the appointment, by operation of law, 22 of the secretary of state as agent for service of process 23 in Iowa for foreign tax return preparers, as defined in the 24 bill, unless those foreign tax return preparers have a valid 25 registered agent on file with the secretary of state. 26 Code section 421D.8 as created in the bill prohibits, on 27 or after January 1, 2019, numerous actions by a tax return 28 preparer, and prohibits persons from assuming the title of 29 “tax return preparer” unless duly registered with the board or 30 exempt from such registration. The bill makes violations of 31 these and other provisions relating to tax return preparers 32 a simple misdemeanor. A simple misdemeanor is punishable by 33 confinement for no more than 30 days or a fine of at least $65 34 but not more than $625 or by both. The bill provides that 35 -14- LSB 5649XC (3) 87 mm/jh 14/ 15

S.F. _____ violations may also subject a person to civil penalties and 1 other costs imposed by the board, and may result in a denial, 2 suspension, or revocation by the board of the tax return 3 preparer’s registration. The bill provides administrative 4 procedures that must be followed when such denial, suspension, 5 or revocation occurs and further provides that the board 6 may seek civil injunctions against persons from violating 7 provisions of the bill or from preparing tax returns. 8 -15- LSB 5649XC (3) 87 mm/jh 15/ 15