Which of the following statements is true about CPA tax practice?
Interstate licensing requirements apply only to CPAs who perform attest services.
Tax return preparation, tax planning services and tax advocacy are not the practice of public accounting so can be performed wherever needed without an authorization to practice.
A CPA who doesn’t use the CPA designation doesn’t need to worry about interstate CPA licensing requirements.
Answer—none of these statements is true.
Recently, there has been considerable publicity about the difficulty CPAs face when they want to serve clients or otherwise practice across state lines. If you are a CPA who performs only tax services, you may think this doesn’t affect you, but this is a gross misconception. Once you are licensed as a CPA in any state, interstate CPA licensing requirements apply to you, regardless of the type of client services you perform.
In the April 2007 JofA, Scott Voynich outlined the mobility problem facing the CPA profession and explained the uniform approach solution endorsed by the Institute and the National Association of State Boards of Accountancy (NASBA) allowing licensed CPAs the ability to provide services across state lines without being subject to unnecessary burdens that interfere with their ability to provide the highest-quality services to their clients (see “Barriers to Mobility: A Crisis for Many CPAs,” JofA, April 07, page 46).
As practitioners who work in a large firm and regularly deal with licensing issues, we are proponents of the new revision of Section 23 of the Uniform Accountancy Act (UAA) that has become known as “no notice, no fee, no escape”(which is explained in more detail later in this article) and want to make others aware of the issues surrounding mobility, especially for tax practitioners who may be violating current accountancy laws in other states without realizing it. These issues affect practices of all sizes, from sole practitioners to large firms.
INTERSTATE MOBILITY REGULATIONS ARGUABLY FAVOR NON- CPAs
Consider this scenario. Joan Smith, a licensed CPA, and Steve Jones, an enrolled agent, work in the tax department of a Florida CPA firm. Both learn that in a few days they will have to travel to three states for important client meetings, after which they will be preparing tax returns for the client.
Smith reviews the CPA practice regulations in each of the three states she’ll be visiting and learns that in one of the states she must apply for a temporary permit before she can perform any services. The processing time for the temporary permit is at least two weeks. Another state grants practice privileges based on substantial equivalency, but Smith is ineligible because she is licensed in Florida, which is not a substantially equivalent state. Her only recourse is to apply for a full reciprocal license, which can take months to process.
Jones, the enrolled agent, can travel and perform the same client services in all three states without obtaining authorization to practice in any of them. As a result, Jones gets the assignment, the experience and the client exposure, while Smith is left to wonder why she bothered to become a CPA.
How is this possible? Because in most states you do not need a CPA license to perform tax preparation, tax planning or tax advocacy services. This means that the complicated licensing requirements with which CPAs must comply to serve clients with multiple state locations do not apply to tax practitioners who are not CPAs. As a result many tax practitioners who are attorneys, enrolled agents, etc., but not CPAs, are not regulated by the accountancy boards. They can perform services for clients across state lines while CPAs are mired in a regulatory mess. If you are a CPA who performs only tax services, interstate CPA licensing requirements apply to you, regardless of the type of client services you perform. Tax practitioners who erroneously believe that their interstate activities are not regulated by the state boards of accountancy may be violating the accountancy laws in another state without realizing it.
HOW IT REALLY WORKS
When you consider serving a client in another state, the first question to ask is: Does this service fall within that state’s definition of what it means to “practice public accounting”? The answer will vary, but most states include tax services in the scope of practice. Once an individual has been licensed as a CPA in his or her home state, most other states require some type of authorization to perform any services for clients located in their states. Several state boards of accountancy require all CPAs who perform services for clients with business interests in their states to apply and pay for practice privileges, even if the CPA did not physically enter the state to provide the services. In many states, if a CPA performs any client services on behalf of a CPA firm, that individual is holding himself or herself out as a CPA. This applies even if the individual CPA never uses the CPA designation in writing or orally in connection with the services performed.
Even provisions that exist in the majority of state accountancy statutes that appear to exempt individuals who prepare tax returns and other nonattest services from licensure requirements do not help a CPA. These provisions typically state that “any person” or a “nonlicensee” may perform nonattest services “involving the use of accounting skills, including the preparation of tax returns, management advisory services, and the preparation of financial statements without the issuance of reports” without being a licensee of that state. Unfortunately, most state boards of accountancy interpret these provisions to exempt only individuals who are not CPAs in any state. A CPA who performs services in a state without the appropriate license, permit or authorization may be subject to disciplinary action and/or fines in that state.
The Old Substantial Equivalency Model
Under the original model of substantial equivalency in Section 23 of the UAA, a CPA licensed in a state that has examination, education and experience requirements that were substantially equivalent to the UAA, or who has individual qualifications that are verified as substantially equivalent, would avoid the complicated and timeconsuming exercise of applying for a full license. The CPA would theoretically submit a simple one-page notice form and automatically qualify for practice privileges in another state. A CPA with practice privileges in another state is not considered a licensee and is not required to comply with the CPE requirements of that state. Unfortunately, many states that adopted Section 23 included additional restrictions and requirements that were not consistent with the UAA.
IS HELP ON THE WAY?
To address these problems, a revision of the UAA was jointly adopted by the AICPA and NASBA in July 2007 that has become known as “no notice, no fee, no escape.” This revision removes the need for notification and payment entirely (no notice/no fee). At the same time, a CPA automatically consents to be subject to the accountancy rules, regulations and disciplinary procedures of any state in which he or she decides to practice (no escape).
“No notice, no fee, no escape” is often referred to as the driver’s license model. A driver who is licensed in any state can drive across the country without having to apply for an additional driver’s license every time he or she crosses into another state. If the driver does not obey the traffic laws, he or she can be disciplined by the state where the infraction occurred.
Similarly, CPAs who are either (a) licensed in a substantially equivalent state or (b) not licensed in a substantially equivalent state but are verified as having individual qualifications that are substantially equivalent, will automatically have practice privileges that grant them the same rights as a licensee of any state. Under this proposed revision, substantially equivalent CPAs may serve the needs of their clients across state lines— physically, electronically or by any other means—without having to apply or pay a fee for additional licenses, permits or practice privileges. To protect the public, boards of accountancy are granted expanded disciplinary jurisdiction and authority over all CPAs and their CPA firms that practice directly or indirectly in a state.
The current revision of the UAA also provides for “no notice/no fee” for CPA firms under certain circumstances. An out-of-state firm with no office in a state would be required to obtain a permit only if it were providing an audit, examination of prospective financial information, or a PCAOB engagement to a client having a home office in state—the work may be supervised and the report signed by an individual with practice privileges. An out-of-state firm with no office in a state would not need a firm permit to provide (a) the listed attest services for a client that did not have a home office in the state or (b) a SSARS review or compilation or any other nonattest services for a client with a home office in the state, provided the firm meets the state’s ownership and peer review requirements, the firm is authorized to perform these services in the home state, and the services are performed by individuals with practice privileges.
The AICPA, NASBA, state CPA societies and others in the profession are trying to get “no notice, no fee, no escape” mobility legislation passed in all U.S. jurisdictions over the next few years. The challenge, as always, is getting 55 jurisdictions to individually enact and implement the provision in a uniform way. The AICPA, NASBA and the profession have been working hard to make this happen. As of May 2008, 22 states had enacted “no notice, no fee, no escape” (for a summary of state activity on CPA mobility, go to www.aicpa.org/Legislative+Activities+and+State+Licensing+Issues/Mobility+and+State+Licensing+Issues/Summary+of+State+Activity+on+CPA+Mobility.htm ). Mobility legislation has been introduced in a number of states and is under consideration in many others. This is real progress, assuming the states implement the legislation in a manner consistent with the UAA.
Someday, this new mobility legislation may be adopted uniformly in all U.S. jurisdictions. Until that day, a CPA cannot simply assume that interstate licensing laws do not apply to tax or any other client services. Before traveling or performing services for a client located in a state where he or she is not licensed, each CPA should make sure that he or she is practicing legally in the other state. Check your firm’s resources, the state boards of accountancy Web sites, the AICPA Web site or state CPA societies for guidance on licensing requirements in a particular state.
Negotiating through the maze of rules is challenging, frustrating and, in the view of many, unnecessary.
As of April 2008, only four states do not require an out-of-state CPA to obtain an authorization to practice to perform tax services. Of these states, one allows CPAs from any state to perform any type of client services in the state without an authorization to practice, provided the CPA does not reside or have a principal place of business in that state. Some states have certain limited exceptions to licensing, for example, employee and incidental practice exceptions, which are not addressed in this article. The following is an overview of requirements for CPA tax practitioners in the other 47 jurisdictions, based upon the statutes and rules of each jurisdiction, information posted on state boards of accountancy Web sites and guidance received from staff at the various state boards of accountancy.
Twenty-one states require the individual CPA, and in some states, their firm, to obtain an authorization to practice. Some of these states have temporary permits or practice privileges based on substantial equivalency—others require a temporary permit or full reciprocal license.
Twenty-one states have enacted legislation that requires tax practitioners to obtain an authorization to practice if they are not licensed in a substantially equivalent state or are not individually substantially equivalent. One additional state will have this requirement in the near future.
Four states allow CPAs from any state to practice without an authorization to practice but only if certain conditions are met. Three states allow CPAs from any state to perform any type of client services if the CPAs are affiliated with a CPA firm that is registered in that state. In one of these four states, each individual office of a multistate firm must register—all CPAs from that office listed on the permit are then permitted to practice in the state without an individual authorization to practice.
Uniform Accountancy Act Fifth Edition, July 2007, www.aicpa.org/download/states/UAA_Fifth_Edition_January_2008.pdf
Mobility and State Licensing Issues, www.aicpa.org/Legislative+Activities+and+state+licensing+Issues/
If you are a CPA who performs only tax services, interstate CPA licensing requirements apply to you, regardless of the type of client services you perform. CPAs who perform services or serve clients located in a state without the appropriate license, permit or authorization may be subject to disciplinary action and/or fines in that state.
Most states do not require a CPA license to perform tax preparation, tax planning, or tax advocacy services. This means that tax practitioners who are not CPAs do not have to comply with the complicated licensing requirements that apply to CPAs to service clients with multiple state locations.
The first question to ask when considering whether to serve a client in another state is: Does this service fall within that state’s definition of what it means to "practice public accounting"? The answer will vary, but most states include tax services in the scope of practice.
A revision of the Uniform Accountancy Act (UAA), known as "no notice, no fee, no escape," was jointly adopted by the AICPA and the National Association of State Boards of Accountancy (NASBA) in July 2007. Under this proposal, substantially equivalent CPAs may serve the needs of their clients across state lines—physically, electronically or by any other means—without having to apply or pay a fee for additional licenses, permits or practice privileges.
The AICPA, NASBA, state CPA societies and others in the profession are actively involved in getting "no notice, no fee, no escape" mobility legislation passed in all U.S. jurisdictions over the next few years. The challenge is getting jurisdictions to individually enact and implement the provision in a uniform way.
Jeffrey R. Hoops CPA, is a partner and the Americas
Ethics and Compliance Officer at Ernst &Young LLP. His e-mail
address is email@example.com .
Nira Weisel , Esq., is a member of Ernst &
Young LLP’s Quality and Risk Management group and deals extensively
with CPA licensing issues. Her e-mail address is firstname.lastname@example.org .