Assembly Bill 1140 (AB-1140) is a bill working its way through the California legislature that would adversely impact California tax return preparers directly, as well as their clients indirectly. If enacted, this bill would infringe upon free trade and impose requirements that discriminate against a small but very important portion of the California tax preparation community known as California registered tax preparers (CRTPs).

These new requirements would apply to CRTPs while exempting a much larger portion of the tax preparation community that includes certified public accountants, enrolled agents and attorneys. If enacted, AB-1140 would provide a precedent for the California legislature to impose similar requirements on other forms of service businesses including financial planners, real estate and insurance brokers, dentists, attorneys and CPAs, just to mention a few.

AB-1140 requires CRTPs (not CPAs, EAs or attorneys) to provide potential clients with two disclosures, one before preparing the tax return and one after preparing the tax return.

Notice Before: A written notice would be required before preparing the potential client’s return that includes all of the following information:

• A standardized disclosure statement informing a potential client with income below sixty-six thousand dollars ($66,000) that they may be eligible for free online tax preparation services, and that an individual with income below fifty-six thousand dollars ($56,000) may be eligible for free in-person tax preparation services through the IRS’s Volunteer Income Tax Assistance (VITA) program. The statement shall also identify the IRS’s internet websites where an individual may find additional information on each program and the Franchise Tax Board’s CalFile internet website.
• A list of costs and fees charged by the CRTP for usual and customary tax preparation services, including, but not limited to, California Form 3514 and federal Schedule EIC (Form 1040).
• The CRTP’s federal PTIN number.

Notice After: After completing a tax return, a CRTP would be required to provide a written disclosure signed and dated by the CRTP including:

• The total cost charged by the tax preparer
• The CRTP’s contact information and federal preparer number (PTIN)
• Whether others were involved in preparing the return, their names, contact information and PTINs
• Both statements must be signed and dated by the client and retained by the CRTP for a minimum period of three years.

A CRTP who repeatedly violates these provisions will be subject to a $750 penalty.

Here’s what’s wrong with this legislation:

1 > Discrimination - This bill discriminates against California tax professionals, as Enrolled Agents and CPAs are exempt. 

2 > Impossible to comply with - The way AB-1140 is written, it is impossible to comply with, as it requires the statement to be given to a potential tax client before preparing his or her tax return. However, before engaging a client and preparing a return, the CRTP will not know the potential client’s income level.

3 > Increases in preparation costs with additional regulation

4 > Administrative restraint of trade - Treating one segment of the tax preparation industry to cost-increasing and revenue-decreasing legislation certainly invokes governmental restraint of trade and due process concerns. By subjecting CRTPs to its provisions, AB-1140 bestows economic privilege to CPAs, EAs, and tax-preparing attorneys.

5 > Free file may not be free - The IRS VITA program uses unregulated volunteers with no continuing education requirements and with different degrees of expertise to prepare returns. The bottom line is that a free file error could cost far more than tax preparation by a legally registered tax return preparer (CRTP). 

6 > Privacy concern and IRS PTIN - The legislation requires a CRTP to disclose his or her federal PTIN rather than CTEC registration number. Opening up the tax professional to fraudulently prepared returns under their PTIN number. 

This bill has already passed the State Assembly. If you are a CRTP or other stakeholder, please voice your opposition by signing this petition.