SSB 3151 (LSB 5649XC (3) 87)

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 establish a tax return preparer oversight board to regulate tax return preparers, modifying the powers and duties of the director of revenue, and providing penalties.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 421.17, Code 2018, is amended by adding the following new subsection:
   NEW SUBSECTION.  35.  To make state individual income tax returns and related tax information available to the tax return preparer oversight board for purposes of the administration and enforcement of chapter 421D. The department of revenue and the tax return preparer oversight board may exchange information in a manual and automated fashion. The department of revenue, in cooperation with the tax return preparer oversight board, may adopt rules, if necessary, to implement this subsection. The sharing of information by the department of revenue with the tax return preparer oversight board pursuant to this subsection shall not be deemed a violation of the confidentiality provisions of sections 422.20 and 422.72.
    Sec. 2.  NEW SECTION.  421D.1  Short title.
   This chapter shall be known and may be cited as the “Tax Return Preparer Oversight Act”.
    Sec. 3.  NEW SECTION.  421D.2  Definitions.
   For purposes of this chapter and unless otherwise required by the context:
   1.  “Board” means the tax return preparer oversight board.
   2.  “Client” means a person for whom a tax return preparer performs or agrees to perform tax return preparation.
   3.  “Enrolled agent” means an agent enrolled to practice before the federal internal revenue service pursuant to 31 C.F.R. §10.4.
   4.  “Tax return” means any return, declaration, refund, claim, or other document required to be made or filed in connection with local, state, or federal income taxes.
   5.  a.  “Tax return preparer” means any of the following:
   (1)  An individual who, for a fee or other consideration, prepares or assists with the preparation of five or more tax returns for clients during a calendar year or who assumes final responsibility for completed work on such tax returns on which preliminary work has been done by another individual, or an individual who holds himself or herself out as offering services described in this subparagraph. 
   (2)  A corporation, partnership, association, or other entity that associates with or employs individuals described in subparagraph (1) of this paragraph “a”, unless such association or employment is unrelated to the individual’s tax return preparation services.
   b.  “Tax return preparer” does not include any of the following:
   (1)  An individual licensed as a certified public accountant under chapter 542 or a similar law of another state, including an employee of that individual while functioning within the employee’s scope of employment if the employee does not sign tax returns.
   (2)  An individual admitted to practice law in this state or another state, including an employee of that individual while functioning within the employee’s scope of employment if the employee does not sign tax returns. 
   (3)  A fiduciary of an estate, trust, or individual, while functioning within the fiduciary’s legal duty and authority with respect to that individual, or that estate or trust or its testator, trustor, grantor, or beneficiaries, and including an employee of that fiduciary while functioning within the employee’s scope of employment if the employee does not sign tax returns. 
   (4)  An individual who prepares the tax returns of the individual’s employer, while functioning within the individual’s scope of employment with the employer.
   (5)  An individual employed by a local, state, or federal government agency, while functioning within the individual’s scope of employment with the government agency.
   (6)  An employee of a person described in paragraph “a”, subparagraphs (1) and (2), if the employee provides only clerical or other comparable services.
    Sec. 4.  NEW SECTION.  421D.3  Board creation and composition.
   1.  A tax return preparer oversight board is created consisting of five members appointed by the governor and subject to confirmation by the senate. Four members of the board shall be individuals who have been tax return preparers for not less than five years prior to appointment. One member shall be a public member who is not a tax return preparer.
   2.  a.  For the initial appointments, the terms of office shall be as follows:
   (1)  One member shall serve a term of one year.
   (2)  One member shall serve a term of two years.
   (3)  One member shall serve a term of three years.
   (4)  One member shall serve a term of four years.
   (5)  The public member shall serve a term coterminous with the governor.
   b.  For all succeeding appointments, each member other than the public member shall be appointed to serve a term of four years and each public member shall serve a term coterminous with the governor.
   c.  A member shall not serve more than two terms or eight years, whichever is less, on the board. 
   3.  Each member shall serve until such time as the successor member has been appointed.
   4.  A vacancy on the board shall be filled by the governor in the manner provided for regular appointments and shall be for the remainder of the unexpired term.
   5.  Members shall qualify by taking the regular oath of office as prescribed by law for state officers.
   6.  Members shall serve without compensation but shall be allowed their necessary travel and expenses incurred in the performance of official duties.
   7.  Members serve at the pleasure of the governor.
   8.  The board shall establish rules of procedure which shall include but not be limited to the following guidelines:
   a.  The annual election of a chair and such other officers as deemed necessary.
   b.  A quorum of at least three members shall be required to conduct business.
   c.  The board shall meet at least four times annually.
   d.  The board shall comply with chapter 17A, chapter 21, and such other relevant statutory provisions applicable to boards, commissions, and committees.
   9.  Information made available to the board by the department of revenue pursuant to section 421.17, subsection 35, shall be subject to the confidentiality provisions in sections 422.20 and 422.72 to the same extent as such information is subject to those confidentiality provisions while in the possession of the director of revenue.
   10.  Members of the board shall not be held personally liable for actions taken under this chapter while acting in good faith and in a reasonable manner.
    Sec. 5.  NEW SECTION.  421D.4  Board powers and duties.
   The board shall have the following powers and duties:
   1.  To determine qualifications for registration as a tax return preparer, to develop and administer the examination for registration as a tax return preparer, and to issue registrations to qualified applicants. In developing the examination for registration as a tax return preparer, the board may utilize, in whole or in part, any examination approved by the federal internal revenue service, or any state board or authority responsible for the licensing or regulation of accountants, tax practitioners, or attorneys. 
   2.  To develop and administer forms for use in implementing the provisions of this chapter, including but not limited to forms for initial registration and renewal registration of tax return preparers.
   3.  To issue reports and to make recommendations to the governor and general assembly on matters pertaining to the regulation of tax return preparers.
   4.  To adopt rules for implementation of this chapter, to provide for the protection of clients, and to assist tax return preparers in interpreting this chapter. Such rules shall include but not be limited to the following:
   a.  Developing and administering examinations required for registration as a tax return preparer.
   b.  The renewal of a tax return preparer registration, the selecting of inactive status of a registration and the reactivation of that registration, and the reinstatement of a tax return preparer who fails to renew a registration for any reason if the tax return preparer is otherwise entitled to be registered. 
   c.  Adoption of rules of professional conduct for tax return preparers.
   d.  After consultation with the department of administrative services, the adoption of reasonable fees for all of the following that are sufficient to offset the expenses incurred in the administration of the activity for which the fee is established:
   (1)  Application for examination for a tax return preparer registration.
   (2)  Issuance or renewal of a tax return preparer registration.
   (3)  Issuance or renewal of an inactive tax return preparer registration. 
   (4)  Reactivation of an inactive tax return preparer registration.
   (5)  Restoration of a lapsed tax return preparer registration.
   (6)  Issuance of a duplicate or replacement of a lost tax return preparer registration. 
   5.  To establish a fund within the state treasury under the control of the board. Moneys deposited in or accruing to such fund are appropriated to the board for purposes of administering this chapter. Notwithstanding section 12C.7, subsection 2, interest or earnings on moneys in the fund shall be credited to the fund. Notwithstanding section 8.33, moneys credited to the fund that remain unexpended or unobligated at the end of a fiscal year shall not revert to any other fund. All fees, penalties, and fines imposed and collected by the board shall be deposited in the fund.
   6.  To employ and discharge personnel as necessary, prescribe their duties and powers, and fix their compensation.
   7.  To administer oaths, hold hearings, and take testimony about matters within the jurisdiction of the board.
   8.  To issue subpoenas for the attendance of witnesses to testify or the production of evidence in connection with a disciplinary action brought under this chapter or a proceeding brought for an alleged violation of this chapter, and to petition courts of competent jurisdiction to compel compliance with subpoenas.
   9.  a.  Except as provided in paragraph “b”, to investigate all complaints that allege a violation of this chapter. If the complaint involves an enrolled agent, a copy of the complaint and the findings of the board shall be forwarded to the federal internal revenue service office of professional responsibility, unless the complaint is determined to be without merit. 
   b.  (1)  If the complaint involves an individual or firm governed by the Iowa accountancy examining board under chapter 542, or a similar board in another jurisdiction, the complaint shall be immediately forwarded to that board.
   (2)  If the complaint involves an attorney admitted to practice law in this state or in another jurisdiction, the complaint shall be immediately forwarded to the Iowa supreme court or to the equivalent attorney governing body of the other jurisdiction, as applicable. 
   10.  The board may by rule establish and impose penalties upon tax return preparers for violations of section 421D.8, subsection 3, paragraphs “i”, “j”, “k”, “l”, “m”, and “n”. Such penalties shall be in addition to any other penalties imposed by the board, the department of revenue, or the federal internal revenue service.
   11.  The lapse, suspension, or revocation of a tax return preparer registration under this chapter by operation of law or by order of the board or a court, or the voluntary surrender of such a registration by a tax return preparer, shall not deprive the board of jurisdiction or authority to proceed with any investigation or other action against the tax return preparer, nor shall it revise or render void any previous action by the board against the tax return preparer. 
    Sec. 6.  NEW SECTION.  421D.5  Administrative remedies —— civil penalties.
   1.  The board on the affirmative vote of a majority of the members may deny registration to any applicant registering as a tax return preparer, reprimand any tax return preparer, or suspend or revoke the registration of any tax return preparer if the tax return preparer does any of the following:
   a.  Fails to meet the qualifications for registration as a tax return preparer under section 421D.7.
   b.  Violates any provision of this chapter or the rules adopted by the board, or knowingly aids or abets another person in violating any provision of this chapter or the rules adopted by the board.
   c.  Is convicted of a misdemeanor or felony directly related to the tax return preparer’s fitness and qualification to provide tax return preparation services.
   d.  Is guilty of negligence, incompetence, or misconduct while providing services as a tax return preparer.
   2.  Except as otherwise provided in this chapter, before the board takes any final action to deny, suspend, or revoke a registration or to reprimand a tax return preparer, the board shall give the person an opportunity for a hearing before the board in accordance with chapter 17A.
   3.  The board, after a hearing and upon a finding that a violation of this chapter or the rules adopted by the board has occurred, may do one or more of the following:
   a.  Issue an order requiring the person to cease and desist from the violation found.
   b.  Seek an injunction against the person pursuant to section 421D.6.
   c.  Deny, suspend, or revoke the registration of the person.
   d.  Assess costs incurred by the board against the person.
   e.  Assess a civil penalty not to exceed ten thousand dollars against the person for any such violation. 
    Sec. 7.  NEW SECTION.  421D.6  Civil action.
   1.  The board may commence a civil action against a person to do any of the following:
   a.  Enjoin a person from violating any provision of this chapter.
   b.  Enjoin a person who has violated or is violating any provision of this chapter, or the employer of that person having knowledge of such violations, from further engaging in the preparation of tax returns.
   2.  The Iowa district court shall have jurisdiction over actions brought under this section and may grant appropriate relief.
    Sec. 8.  NEW SECTION.  421D.7  Registration of tax return preparers.
   1.  a.  On or after January 1, 2019, a tax return preparer shall not, for a fee or other consideration, prepare or assist with the preparation of five or more tax returns for clients during a calendar year, or assume final responsibility for completed work on such tax returns on which preliminary work has been done by another individual, or shall not hold the tax return preparer out as offering such tax return preparation services, unless the tax return preparer meets the requirements of paragraph “b” or “c”, as applicable, and registers with the board in the manner and form prescribed by the board.
   b.  For an individual to be eligible to register as a tax return preparer under this subsection, the applicant shall fulfill all of the following requirements:
   (1)  The applicant shall submit a complete application to the board in the manner and form prescribed by the board.
   (2)  The applicant shall have completed the required number of hours of instruction, as determined by the board, in basic personal income tax law, theory and practice, and ethics from a provider approved by the board.
   (3)  The applicant shall be at least eighteen years of age.
   (4)  The applicant shall be of good moral character as determined by the board.
   (5)  The applicant shall agree in writing to comply with the rules of professional conduct adopted by the board.
   (6)  The applicant shall pay a registration fee, the amount of which shall be determined by the board.
   (7)  The applicant shall pass a tax return preparer examination. The following individuals shall be exempt from the examination requirement in this subparagraph:
   (a)  An individual who is accredited by and in good standing with the accreditation council for accountancy and taxation, inc., as an accredited business accountant/advisor, an accredited tax advisor, or an accredited tax preparer.
   (b)  An individual who is an enrolled agent in good standing with the federal internal revenue service.
   c.  For a corporation, partnership, association, or other entity to be eligible to register as a tax return preparer under this subsection, the applicant shall fulfill all of the following requirements:
   (1)  The applicant shall submit a complete application to the board in the manner and form prescribed by the board.
   (2)  Each principal of the entity shall agree in writing that the principals and the entity will comply with the rules of professional conduct adopted by the board.
   (3)  The applicant shall pay a registration fee, the amount of which shall be determined by the board.
   2.  a.  Registration under subsection 1 shall be valid for a period of two years and may be renewed as provided in paragraph “b”. Each renewal shall be valid for a period of two years.
   b.  For an individual to be eligible to renew registration, the applicant shall successfully complete annual continuing education requirements that are equivalent to the continuing education requirements for registered tax return preparers described in 31 C.F.R. §10.6, and shall pay a renewal fee, the amount of which shall be determined by the board. For a corporation, partnership, association, or other entity to be eligible to renew registration, the applicant shall comply with subsection 1, paragraph “c”, subparagraph (1), and shall pay a renewal fee, the amount of which shall be determined by the board.
   3.  A person who fails to timely renew registration as determined by the board shall not be allowed reinstatement unless the person pays a reinstatement fee, the amount of which shall be determined by the board.
   4.  A person whose registration is on inactive status shall not be allowed reinstatement to active status unless the person pays a reactivation fee, the amount of which shall be determined by the board. 
   5.  Unless a foreign tax return preparer has a valid registered agent for service of process in this state on file with the secretary of state, that foreign tax return preparer, by acting as a tax return preparer in this state, appoints the secretary of state as the tax return preparer’s agent for service of process in any civil action related to the tax return preparer’s acting as a tax return preparer in this state. For purposes of this subsection, “foreign tax return preparer” means a tax return preparer that is a nonresident individual or an entity whose commercial domicile is not in this state. 
    Sec. 9.  NEW SECTION.  421D.8  Responsibilities of tax return preparers —— prohibitions —— violations —— criminal penalties.
   1.  A tax return preparer shall have the affirmative responsibility to act in the best interests of the tax return preparer’s client and in accordance with the rules of professional conduct adopted by the board under this chapter. 
   2.  A tax return preparer shall conspicuously display at the tax return preparer’s place of business the documentation of registration under this chapter in accordance with the rules adopted by the board.
   3.  On or after January 1, 2019, it shall be a violation of this section for a tax return preparer to do any of the following:
   a.  Fail to register as a tax return preparer with the board.
   b.  Act as a tax return preparer while the tax return preparer’s registration is inactive, revoked, or lapsed. 
   c.  Fraudulently or deceptively obtain or attempt to obtain a registration as a tax return preparer.
   d.  Fraudulently or deceptively claim to be a registered tax return preparer.
   e.  Make or authorize the making of any fraudulent, untrue, or misleading statement or representation, oral or written or recorded by any means, that is intended to induce a person to use the tax preparation service of the tax return preparer.
   f.  Obtain the signature of a client on a tax return or authorizing document that has not been fully completed in accordance with the official instructions of the tax return. 
   g.  Knowingly give false or misleading information to the board or to a client.
   h.  Violate the rules of professional conduct adopted by the board.
   i.  Fail without reasonable cause to sign a client’s tax return if payment for services rendered has been made.
   j.  Fail without reasonable cause to maintain for at least three years copies of all tax returns prepared by the tax return preparer, fail to make such records available to the client during the three-year period, or fail to present a completed tax return to the client not later than the time such tax return is presented for such client’s signature.
   k.  Prepare, aid or assist, procure, or advise with respect to an understatement of liability for a client that causes the tax return preparer to be subject to penalties imposed under section 6694 or 6701 of the Internal Revenue Code, or would cause the tax return preparer to be subject to such penalties if those sections applied to the taxes imposed under chapter 422. For purposes of the taxes imposed under chapter 422, “understatement of liability” means any understatement of the net amount payable with respect to any tax imposed under chapter 422 or any overstatement of the net amount creditable or refundable with respect to any such tax. The determination of whether there is an understatement of liability must be made without regard to any administrative or judicial action involving the tax return preparer.
   l.  Violate section 6695(e), 6695(g), or 6700 of the Internal Revenue Code.
   m.  Fail without reasonable cause to include on each tax return prepared by the tax return preparer an identifying number as may be provided by the board for securing the proper identification of the tax return preparer, the tax return preparer’s employer, or both.
   n.  Endorse or otherwise negotiate, directly or through an agent, any check made in respect of the tax that is the subject of a tax return that is issued to a person other than the tax return preparer. This paragraph shall not apply with respect to the deposit by a bank of the full amount of the check in the person’s account in such bank for the benefit of the person.
   o.  Violate any other provision of this section or section 421D.7, or the rules adopted by the board relating to this subchapter.
   4.  On or after January 1, 2019, a person shall not assume or use the title or designation “tax return preparer”, or assume or use any other title, designation, word, letter, abbreviation, sign, card, or device tending to indicate such person is a tax return preparer, unless the person is registered under section 421D.7 or is a person described in section 421D.2, subsection 5, paragraph “b”.
   5.  A violation of this section is a simple misdemeanor. In addition to any other applicable penalties, a court may order a person to pay restitution for any damages caused in violating a provision of this section.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill creates the tax return preparer oversight Act in new Code chapter 421D and establishes a tax return preparer oversight board (board) to regulate tax return preparers. The bill also makes a corresponding amendment to the powers and duties of the director of revenue.
   BOARD. The bill includes provisions relating to the creation, composition, and operation of the board and prescribes numerous powers and duties of the board relating to its regulation of tax return preparers, including but not limited to the registration of such persons, creation of forms and exams, adoption of administrative rules, adoption of rules of professional conduct for tax return preparers, employment of personnel, establishment of fees and penalties, and the investigation and enforcement of violations. The board is authorized to establish a fund under its control and to retain all fees, penalties, and fines it imposes and collects. 
   The bill also modifies the powers and duties of the director of revenue to provide that the director shall make state individual income tax returns and related tax information available to the board for purposes of administration and enforcement of new Code chapter 421D, and provides that the sharing of such information is not a violation of the confidentiality provisions of Code sections 422.20 and 422.72.
   TAX RETURN PREPARERS. On or after January 1, 2019, tax return preparers are required to register with the board and comply with the provisions in the bill. “Tax return preparer” is defined in the bill to generally include individuals who prepare five or more tax returns in a calendar year and corporations or other entities that associate with or employ such individuals. Certified public accountants, attorneys, and certain other fiduciaries and individuals are excluded from the definition. The bill prescribes several requirements that must be met in order to be eligible to register as a tax return preparer, including but not limited to paying a registration fee, being at least 18 years old and of good moral character, agreeing in writing to comply with rules of professional conduct adopted by the board, completing certain tax law training as determined by the board, and passing of an examination approved by the board. Enrolled agents as designated by the internal revenue service (IRS) and certain other accredited tax advisors as described in the bill are exempt from the examination requirement. The bill provides that registration as a tax return preparer is valid for two years, and then must be renewed. In order to renew registration, individual tax return preparers must complete certain continuing education requirements as described in the bill that are similar to continuing education requirements for tax return preparers established by the IRS.
   The bill provides for the appointment, by operation of law, of the secretary of state as agent for service of process in Iowa for foreign tax return preparers, as defined in the bill, unless those foreign tax return preparers have a valid registered agent on file with the secretary of state. 
   Code section 421D.8 as created in the bill prohibits, on or after January 1, 2019, numerous actions by a tax return preparer, and prohibits persons from assuming the title of “tax return preparer” unless duly registered with the board or exempt from such registration. The bill makes violations of these and other provisions relating to tax return preparers a simple misdemeanor. A simple misdemeanor is punishable by confinement for no more than 30 days or a fine of at least $65 but not more than $625 or by both. The bill provides that violations may also subject a person to civil penalties and other costs imposed by the board, and may result in a denial, suspension, or revocation by the board of the tax return preparer’s registration. The bill provides administrative procedures that must be followed when such denial, suspension, or revocation occurs and further provides that the board may seek civil injunctions against persons from violating provisions of the bill or from preparing tax returns.