California Puts Another Stumbling Block in the Path of Business?
Just a few moments ago, a friend sent me an email asking about a petition she was asked to sign. You know how these things go around, and are usually bogus...
Here's the message she got:
Subject Line: CA Legislation To Prevent Hiring Tax Consultants
- I am working on a project collecting opposition letters to SB 342 (Wolk). As you know, California is facing another budget deficit and in an effort to collect more money, the legislature has introduced a bill that clamps down on the ability of individual taxpayers and small business owners to hire a tax consultant, who may be able to offer amendments on previous tax returns to reduce tax liabilities.
OK, at face value, that will get your attention. Right?
Let's analyze this message.
1) CA Legislation To Prevent Hiring Tax Consultants - there is NOTHING in the legislation to prevent the hiring of tax consultants.
2) The urgency of this? California SB 342 was introduced in February 2011.
Nothing new in the California legislature since then. In fact, they are in summer recess and are doing nothing presently.
Trying to find anything about their deliberations on the committee's website, is useless. But they do have a list of 2011 legislation they have looked at.
3) What is the bill really about?
It has nothing to do with the rights of taxpayers to hire us!
It has to do with OUR FEES:
1) Judgments for attorney's fees in tax matters will be based only on state law.
2) They want to eliminate our right to charge contingency fees on audits, appeals, etc.
If I were inclined to sign a petition, it would be on the basis of the honest representation of the issue. Not on the basis of some lie, altruistically protecting taxpayers' rights, rather than my own, as a tax professional.
Is this a good Bill? Read it yourself and decide.
What do I think is wrong with the idea of not permitting contingency fees for amended returns and representation?
1) If certain taxpayers had to pay us up front, they could not afford to do so.
2) For certain issues, where the results are not absolutely certain, the taxpayer may fear pursuing the issue if they have to be out of pocket, not knowing if they will ever get the desired refund - or reduction of assessment.
3) In some cases, if we were to charge purely on an hourly basis, and charged for ALL the time involved, the taxpayer would end up paying us far more than we would receive on a contingency fee.
4) The other thing is, this conflicts with Federal law in Circular 230, that specifically permits contingency fees for situations described in SB 342.
5) Many tax professionals would refuse to take cases where they had no chance of getting paid for all their time, especially once their pro-bono time budget is exhausted.
So who really benefits?
1) Since recouping attorneys fees in these case would involve the State of California paying the fees, the state would benefit.
2) Since fewer cases would be brought by taxpayers who really are entitled to money from the State, California would, once again, benefit - to the detriment of California citizens.
Is the State of California so hard up that they want to rip off their citizens?
One last consideration - if legislation like this passes in California, and is unchallenged, or prevails, other states are bound to copy it.
What do you think of SB 342?
Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.