House Study Bill 590 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON STATE GOVERNMENT BILL BY CHAIRPERSON RIZER) A BILL FOR An Act creating the tax return preparer oversight Act to 1 provide for the regulation of tax return preparers by the 2 Iowa accountancy examining board, modifying the powers and 3 duties of the Iowa accountancy examining board and the 4 director of revenue, and providing penalties. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5649YC (6) 87 mm/jh

H.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 Iowa 4 accountancy examining board for purposes of the administration 5 and enforcement of chapter 542A. The department of revenue and 6 the Iowa accountancy examining board may exchange information 7 in a manual and automated fashion. The department of revenue, 8 in cooperation with the Iowa accountancy examining board, may 9 adopt rules, if necessary, to implement this subsection. The 10 sharing of information by the department of revenue with the 11 Iowa accountancy examining 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. Section 542.4, Code 2018, is amended by adding the 15 following new subsection: 16 NEW SUBSECTION . 10. The board shall be responsible for 17 administering chapter 542A. With respect to the administration 18 of chapter 542A, to the extent that any provision of this 19 chapter conflicts with any provision of chapter 542A, including 20 but not limited to any power or duty prescribed to the board in 21 section 542A.3, chapter 542A shall control. 22 Sec. 3. NEW SECTION . 542A.1 Short title. 23 This chapter shall be known and may be cited as the “Tax 24 Return Preparer Oversight Act” . 25 Sec. 4. NEW SECTION . 542A.2 Definitions. 26 For purposes of this chapter and unless otherwise required 27 by the context: 28 1. “Board” means the Iowa accountancy examining board 29 created in chapter 542. 30 2. “Client” means a person for whom a tax return preparer 31 performs or agrees to perform tax return preparation. 32 3. “Enrolled agent” means an agent enrolled to practice 33 before the federal internal revenue service pursuant to 31 34 C.F.R. §10.4. 35 -1- LSB 5649YC (6) 87 mm/jh 1/ 14

H.F. _____ 4. “Tax return” means any return, declaration, refund, 1 claim, or other document required to be made or filed in 2 connection with local, state, or federal income taxes. 3 5. a. “Tax return preparer” means any of the following: 4 (1) An individual who, for a fee or other consideration, 5 prepares or assists with the preparation of five or more tax 6 returns for clients during a calendar year or who assumes 7 final responsibility for completed work on such tax returns on 8 which preliminary work has been done by another individual, 9 or an individual who holds himself or herself out as offering 10 services described in this subparagraph. 11 (2) A corporation, partnership, association, or other 12 entity that associates with or employs individuals described in 13 subparagraph (1) of this paragraph “a” , unless such association 14 or employment is unrelated to the individual’s tax return 15 preparation services. 16 b. “Tax return preparer” does not include any of the 17 following: 18 (1) An individual licensed as a certified public accountant 19 under chapter 542 or a similar law of another state, including 20 an employee of that individual while functioning within the 21 employee’s scope of employment if the employee does not sign 22 tax returns. 23 (2) An individual admitted to practice law in this state or 24 another state, including an employee of that individual while 25 functioning within the employee’s scope of employment if the 26 employee does not sign tax returns. 27 (3) A fiduciary of an estate, trust, or individual, while 28 functioning within the fiduciary’s legal duty and authority 29 with respect to that individual, or that estate or trust or its 30 testator, trustor, grantor, or beneficiaries, and including 31 an employee of that fiduciary while functioning within the 32 employee’s scope of employment if the employee does not sign 33 tax returns. 34 (4) An individual who prepares the tax returns of 35 -2- LSB 5649YC (6) 87 mm/jh 2/ 14

H.F. _____ the individual’s employer, while functioning within the 1 individual’s scope of employment with the employer. 2 (5) An individual employed by a local, state, or federal 3 government agency, while functioning within the individual’s 4 scope of employment with the government agency. 5 (6) An employee of a person described in paragraph “a” , 6 subparagraphs (1) and (2), if the employee provides only 7 clerical or other comparable services. 8 Sec. 5. NEW SECTION . 542A.3 Board powers and duties. 9 The board shall have the following powers and duties in 10 administering this chapter: 11 1. To determine qualifications for registration as a tax 12 return preparer, to develop and administer the examination 13 for registration as a tax return preparer, and to issue 14 registrations to qualified applicants. In developing the 15 examination for registration as a tax return preparer, the 16 board may utilize, in whole or in part, any examination 17 approved by the federal internal revenue service, or any state 18 board or authority responsible for the licensing or regulation 19 of accountants, tax practitioners, or attorneys. 20 2. To develop and administer forms for use in implementing 21 the provisions of this chapter, including but not limited to 22 forms for initial registration and renewal registration of tax 23 return preparers. 24 3. To issue reports and to make recommendations to the 25 governor and general assembly on matters pertaining to the 26 regulation of tax return preparers. 27 4. To adopt rules for implementation of this chapter, to 28 provide for the protection of clients, and to assist tax return 29 preparers in interpreting this chapter. Such rules shall 30 include but not be limited to the following: 31 a. Developing and administering examinations required for 32 registration as a tax return preparer. 33 b. The renewal of a tax return preparer registration, 34 the selecting of inactive status of a registration and the 35 -3- LSB 5649YC (6) 87 mm/jh 3/ 14

H.F. _____ reactivation of that registration, and the reinstatement of a 1 tax return preparer who fails to renew a registration for any 2 reason if the tax return preparer is otherwise entitled to be 3 registered. 4 c. Adoption of rules of professional conduct for tax return 5 preparers. 6 d. After consultation with the department of administrative 7 services, the adoption of reasonable fees for all of the 8 following that are sufficient to offset the expenses incurred 9 in the administration of the activity for which the fee is 10 established: 11 (1) Application for examination for a tax return preparer 12 registration. 13 (2) Issuance or renewal of a tax return preparer 14 registration. 15 (3) Issuance or renewal of an inactive tax return preparer 16 registration. 17 (4) Reactivation of an inactive tax return preparer 18 registration. 19 (5) Restoration of a lapsed tax return preparer 20 registration. 21 (6) Issuance of a duplicate or replacement of a lost tax 22 return preparer registration. 23 5. To establish a fund within the state treasury under 24 the control of the board. Moneys deposited in or accruing 25 to such fund are appropriated to the board for purposes of 26 administering this chapter. Notwithstanding section 12C.7, 27 subsection 2, interest or earnings on moneys in the fund shall 28 be credited to the fund. Notwithstanding section 8.33, moneys 29 credited to the fund that remain unexpended or unobligated at 30 the end of a fiscal year shall not revert to any other fund. 31 All fees, penalties, and fines imposed and collected by the 32 board shall be deposited in the fund. 33 6. To employ and discharge personnel as necessary, 34 prescribe their duties and powers, and fix their compensation. 35 -4- LSB 5649YC (6) 87 mm/jh 4/ 14

H.F. _____ 7. To administer oaths, hold hearings, and take testimony 1 about matters within the jurisdiction of the board. 2 8. To issue subpoenas for the attendance of witnesses to 3 testify or the production of evidence in connection with a 4 disciplinary action brought under this chapter or a proceeding 5 brought for an alleged violation of this chapter, and to 6 petition courts of competent jurisdiction to compel compliance 7 with subpoenas. 8 9. a. Except as provided in paragraph “b” , to investigate 9 all complaints that allege a violation of this chapter. If the 10 complaint involves an enrolled agent, a copy of the complaint 11 and the findings of the board shall be forwarded to the federal 12 internal revenue service office of professional responsibility, 13 unless the complaint is determined to be without merit. 14 b. (1) If the complaint involves an individual or firm 15 governed by the board under chapter 542, or a similar board in 16 another jurisdiction, the complaint shall be handled by the 17 board under chapter 542, or forwarded to the appropriate board 18 of the other jurisdiction. 19 (2) If the complaint involves an attorney admitted to 20 practice law in this state or in another jurisdiction, the 21 complaint shall be immediately forwarded to the Iowa supreme 22 court or to the equivalent attorney governing body of the other 23 jurisdiction, as applicable. 24 10. The board may by rule establish and impose penalties 25 upon tax return preparers for violations of section 542A.7, 26 subsection 3, paragraphs “i” , “j” , “k” , “l” , “m” , and “n” . 27 Such penalties shall be in addition to any other penalties 28 imposed by the board, the department of revenue, or the federal 29 internal revenue service. 30 11. The lapse, suspension, or revocation of a tax return 31 preparer registration under this chapter by operation of law or 32 by order of the board or a court, or the voluntary surrender of 33 such a registration by a tax return preparer, shall not deprive 34 the board of jurisdiction or authority to proceed with any 35 -5- LSB 5649YC (6) 87 mm/jh 5/ 14

H.F. _____ investigation or other action against the tax return preparer, 1 nor shall it revise or render void any previous action by the 2 board against the tax return preparer. 3 Sec. 6. NEW SECTION . 542A.4 Administrative remedies —— 4 civil penalties. 5 1. The board on the affirmative vote of a majority of the 6 members may deny registration to any applicant registering as 7 a tax return preparer, reprimand any tax return preparer, or 8 suspend or revoke the registration of any tax return preparer 9 if the tax return preparer does any of the following: 10 a. Fails to meet the qualifications for registration as a 11 tax return preparer under section 542A.6. 12 b. Violates any provision of this chapter or the rules 13 adopted by the board, or knowingly aids or abets another person 14 in violating any provision of this chapter or the rules adopted 15 by the board. 16 c. Is convicted of a misdemeanor or felony directly related 17 to the tax return preparer’s fitness and qualification to 18 provide tax return preparation services. 19 d. Is guilty of negligence, incompetence, or misconduct 20 while providing services as a tax return preparer. 21 2. Except as otherwise provided in this chapter, before 22 the board takes any final action to deny, suspend, or revoke a 23 registration or to reprimand a tax return preparer, the board 24 shall give the person an opportunity for a hearing before the 25 board in accordance with chapter 17A. 26 3. The board, after a hearing and upon a finding that a 27 violation of this chapter or the rules adopted by the board has 28 occurred, may do one or more of the following: 29 a. Issue an order requiring the person to cease and desist 30 from the violation found. 31 b. Seek an injunction against the person pursuant to section 32 542A.5. 33 c. Deny, suspend, or revoke the registration of the person. 34 d. Assess costs incurred by the board against the person. 35 -6- LSB 5649YC (6) 87 mm/jh 6/ 14

H.F. _____ e. Assess a civil penalty not to exceed ten thousand dollars 1 against the person for any such violation. 2 Sec. 7. NEW SECTION . 542A.5 Civil action. 3 1. The board may commence a civil action against a person to 4 do any of the following: 5 a. Enjoin a person from violating any provision of this 6 chapter. 7 b. Enjoin a person who has violated or is violating any 8 provision of this chapter, or the employer of that person 9 having knowledge of such violations, from further engaging in 10 the preparation of tax returns. 11 2. The Iowa district court shall have jurisdiction over 12 actions brought under this section and may grant appropriate 13 relief. 14 Sec. 8. NEW SECTION . 542A.6 Registration of tax return 15 preparers. 16 1. a. On or after January 1, 2019, a tax return preparer 17 shall not, for a fee or other consideration, prepare or assist 18 with the preparation of five or more tax returns for clients 19 during a calendar year, or assume final responsibility for 20 completed work on such tax returns on which preliminary work 21 has been done by another individual, or shall not hold the tax 22 return preparer out as offering such tax return preparation 23 services, unless the tax return preparer meets the requirements 24 of paragraph “b” or “c” , as applicable, and registers with the 25 board in the manner and form prescribed by the board. 26 b. For an individual to be eligible to register as a tax 27 return preparer under this subsection, the applicant shall 28 fulfill all of the following requirements: 29 (1) The applicant shall submit a complete application to the 30 board in the manner and form prescribed by the board. 31 (2) The applicant shall have completed the required number 32 of hours of instruction, as determined by the board, in basic 33 personal income tax law, theory and practice, and ethics from a 34 provider approved by the board. 35 -7- LSB 5649YC (6) 87 mm/jh 7/ 14

H.F. _____ (3) The applicant shall be at least eighteen years of age. 1 (4) The applicant shall be of good moral character as 2 determined by the board. 3 (5) The applicant shall agree in writing to comply with the 4 rules of professional conduct adopted by the board. 5 (6) The applicant shall pay a registration fee, the amount 6 of which shall be determined by the board. 7 (7) The applicant shall pass a tax return preparer 8 examination. The following individuals shall be exempt from 9 the examination requirement in this subparagraph: 10 (a) An individual who is accredited by and in good standing 11 with the accreditation council for accountancy and taxation, 12 inc., as an accredited business accountant/advisor, an 13 accredited tax advisor, or an accredited tax preparer. 14 (b) An individual who is an enrolled agent in good standing 15 with the federal internal revenue service. 16 c. For a corporation, partnership, association, or other 17 entity to be eligible to register as a tax return preparer 18 under this subsection, the applicant shall fulfill all of the 19 following requirements: 20 (1) The applicant shall submit a complete application to the 21 board in the manner and form prescribed by the board. 22 (2) Each principal of the entity shall agree in writing that 23 the principals and the entity will comply with the rules of 24 professional conduct adopted by the board. 25 (3) The applicant shall pay a registration fee, the amount 26 of which shall be determined by the board. 27 2. a. Registration under subsection 1 shall be valid for a 28 period of two years and may be renewed as provided in paragraph 29 “b” . Each renewal shall be valid for a period of two years. 30 b. For an individual to be eligible to renew registration, 31 the applicant shall successfully complete annual continuing 32 education requirements that are equivalent to the continuing 33 education requirements for registered tax return preparers 34 described in 31 C.F.R. §10.6, and shall pay a renewal fee, 35 -8- LSB 5649YC (6) 87 mm/jh 8/ 14

H.F. _____ the amount of which shall be determined by the board. For a 1 corporation, partnership, association, or other entity to be 2 eligible to renew registration, the applicant shall comply with 3 subsection 1, paragraph “c” , subparagraph (1), and shall pay 4 a renewal fee, the amount of which shall be determined by the 5 board. 6 3. A person who fails to timely renew registration as 7 determined by the board shall not be allowed reinstatement 8 unless the person pays a reinstatement fee, the amount of which 9 shall be determined by the board. 10 4. A person whose registration is on inactive status shall 11 not be allowed reinstatement to active status unless the 12 person pays a reactivation fee, the amount of which shall be 13 determined by the board. 14 5. Unless a foreign tax return preparer has a valid 15 registered agent for service of process in this state on file 16 with the secretary of state, that foreign tax return preparer, 17 by acting as a tax return preparer in this state, appoints 18 the secretary of state as the tax return preparer’s agent for 19 service of process in any civil action related to the tax 20 return preparer’s acting as a tax return preparer in this 21 state. For purposes of this subsection, “foreign tax return 22 preparer” means a tax return preparer that is a nonresident 23 individual or an entity whose commercial domicile is not in 24 this state. 25 Sec. 9. NEW SECTION . 542A.7 Responsibilities of tax return 26 preparers —— prohibitions —— violations —— criminal penalties. 27 1. A tax return preparer shall have the affirmative 28 responsibility to act in the best interests of the tax 29 return preparer’s client and in accordance with the rules of 30 professional conduct adopted by the board under this chapter. 31 2. A tax return preparer shall conspicuously display at the 32 tax return preparer’s place of business the documentation of 33 registration under this chapter in accordance with the rules 34 adopted by the board. 35 -9- LSB 5649YC (6) 87 mm/jh 9/ 14

H.F. _____ 3. On or after January 1, 2019, it shall be a violation 1 of this section for a tax return preparer to do any of the 2 following: 3 a. Fail to register as a tax return preparer with the board. 4 b. Act as a tax return preparer while the tax return 5 preparer’s registration is inactive, revoked, or lapsed. 6 c. Fraudulently or deceptively obtain or attempt to obtain 7 a registration as a tax return preparer. 8 d. Fraudulently or deceptively claim to be a registered tax 9 return preparer. 10 e. Make or authorize the making of any fraudulent, untrue, 11 or misleading statement or representation, oral or written or 12 recorded by any means, that is intended to induce a person to 13 use the tax preparation service of the tax return preparer. 14 f. Obtain the signature of a client on a tax return or 15 authorizing document that has not been fully completed in 16 accordance with the official instructions of the tax return. 17 g. Knowingly give false or misleading information to the 18 board or to a client. 19 h. Violate the rules of professional conduct adopted by the 20 board. 21 i. Fail without reasonable cause to sign a client’s tax 22 return if payment for services rendered has been made. 23 j. Fail without reasonable cause to maintain for at least 24 three years copies of all tax returns prepared by the tax 25 return preparer, fail to make such records available to the 26 client during the three-year period, or fail to present a 27 completed tax return to the client not later than the time such 28 tax return is presented for such client’s signature. 29 k. Prepare, aid or assist, procure, or advise with respect 30 to an understatement of liability for a client that causes 31 the tax return preparer to be subject to penalties imposed 32 under section 6694 or 6701 of the Internal Revenue Code, or 33 would cause the tax return preparer to be subject to such 34 penalties if those sections applied to the taxes imposed under 35 -10- LSB 5649YC (6) 87 mm/jh 10/ 14

H.F. _____ chapter 422. For purposes of the taxes imposed under chapter 1 422, “understatement of liability” means any understatement of 2 the net amount payable with respect to any tax imposed under 3 chapter 422 or any overstatement of the net amount creditable 4 or refundable with respect to any such tax. The determination 5 of whether there is an understatement of liability must be 6 made without regard to any administrative or judicial action 7 involving the tax return preparer. 8 l. Violate section 6695(e), 6695(g), or 6700 of the Internal 9 Revenue Code. 10 m. Fail without reasonable cause to include on each tax 11 return prepared by the tax return preparer an identifying 12 number as may be provided by the board for securing the proper 13 identification of the tax return preparer, the tax return 14 preparer’s employer, or both. 15 n. Endorse or otherwise negotiate, directly or through an 16 agent, any check made in respect of the tax that is the subject 17 of a tax return that is issued to a person other than the tax 18 return preparer. This paragraph shall not apply with respect 19 to the deposit by a bank of the full amount of the check in the 20 person’s account in such bank for the benefit of the person. 21 o. Violate any other provision of this section or section 22 542A.6, or the rules adopted by the board relating to this 23 chapter. 24 4. On or after January 1, 2019, a person shall not assume 25 or use the title or designation “tax return preparer”, or 26 assume or use any other title, designation, word, letter, 27 abbreviation, sign, card, or device tending to indicate 28 such person is a tax return preparer, unless the person is 29 registered under section 542A.6 or is a person described in 30 section 542A.2, subsection 5, paragraph “b” . 31 5. A violation of this section is a simple misdemeanor. In 32 addition to any other applicable penalties, a court may order a 33 person to pay restitution for any damages caused in violating a 34 provision of this section. 35 -11- LSB 5649YC (6) 87 mm/jh 11/ 14

H.F. _____ EXPLANATION 1 The inclusion of this explanation does not constitute agreement with 2 the explanation’s substance by the members of the general assembly. 3 This bill creates the tax return preparer oversight Act 4 in new Code chapter 542A to provide for the regulation of 5 tax return preparers by the Iowa accountancy examining board 6 (board). 7 BOARD. The bill prescribes numerous powers and duties of 8 the board relating to its regulation of tax return preparers, 9 including but not limited to the registration of such persons, 10 creation of forms and exams, adoption of administrative rules, 11 adoption of rules of professional conduct for tax return 12 preparers, employment of personnel, establishment of fees and 13 penalties, and the investigation and enforcement of violations. 14 The board is authorized to establish a fund under its control 15 and to retain all fees, penalties, and fines it imposes and 16 collects. 17 The bill amends the powers and duties of the board in Code 18 chapter 542 (public accountants) to provide that the board is 19 responsible for administering the tax return preparer oversight 20 Act in Code chapter 542A. The bill provides that with respect 21 to the administration of the tax return preparer oversight Act, 22 to the extent any provision of Code chapter 542 conflicts with 23 any provision of the tax return preparer oversight Act, the tax 24 return preparer oversight Act shall control. 25 The bill also modifies the powers and duties of the director 26 of revenue to provide that the director shall make state 27 individual income tax returns and related tax information 28 available to the board for purposes of administration and 29 enforcement of the tax return preparer oversight Act, and 30 provides that the sharing of such information is not a 31 violation of the confidentiality provisions of Code sections 32 422.20 and 422.72. 33 TAX RETURN PREPARERS. On or after January 1, 2019, tax 34 return preparers are required to register with the board and 35 -12- LSB 5649YC (6) 87 mm/jh 12/ 14

H.F. _____ comply with the provisions in the bill. “Tax return preparer” 1 is defined in the bill to generally include individuals 2 who prepare five or more tax returns in a calendar year and 3 corporations or other entities that associate with or employ 4 such individuals. Certified public accountants, attorneys, 5 and certain other fiduciaries and individuals are excluded 6 from the definition. The bill prescribes several requirements 7 that must be met in order to be eligible to register as a 8 tax return preparer, including but not limited to paying a 9 registration fee, being at least 18 years old and of good 10 moral character, agreeing in writing to comply with rules 11 of professional conduct adopted by the board, completing 12 certain tax law training as determined by the board, and 13 passing of an examination approved by the board. Enrolled 14 agents as designated by the internal revenue service (IRS) 15 and certain other accredited tax advisors as described in the 16 bill are exempt from the examination requirement. The bill 17 provides that registration as a tax return preparer is valid 18 for two years, and then must be renewed. In order to renew 19 registration, individual tax return preparers must complete 20 certain continuing education requirements as described in the 21 bill that are similar to continuing education requirements for 22 tax return preparers established by the IRS. 23 The bill provides for the appointment, by operation of law, 24 of the secretary of state as agent for service of process 25 in Iowa for foreign tax return preparers, as defined in the 26 bill, unless those foreign tax return preparers have a valid 27 registered agent on file with the secretary of state. 28 Code section 542A.7 as created in the bill prohibits, on 29 or after January 1, 2019, numerous actions by a tax return 30 preparer, and prohibits persons from assuming the title of 31 “tax return preparer” unless duly registered with the board or 32 exempt from such registration. The bill makes violations of 33 these and other provisions relating to tax return preparers 34 a simple misdemeanor. A simple misdemeanor is punishable by 35 -13- LSB 5649YC (6) 87 mm/jh 13/ 14

H.F. _____ confinement for no more than 30 days or a fine of at least $65 1 but not more than $625 or by both. The bill provides that 2 violations may also subject a person to civil penalties and 3 other costs imposed by the board, and may result in a denial, 4 suspension, or revocation by the board of the tax return 5 preparer’s registration. The bill provides administrative 6 procedures that must be followed when such denial, suspension, 7 or revocation occurs and further provides that the board 8 may seek civil injunctions against persons from violating 9 provisions of the bill or from preparing tax returns. 10 -14- LSB 5649YC (6) 87 mm/jh 14/ 14