As professionals we serve our clients in both direct and indirect methods. We believe that both are important.
We directly serve our clients when we assist them with their specific needs. In the area of taxes that generally means assisting them with the preparation of a tax return, providing advice on what the tax ramifications will be on decisions they must make, or handling a representation issue following their receipt of a letter from a tax authority of the government.
We indirectly serve our clients when we work to change the tax environment that our clients and community must live and work in. To aid in this process, we co-labor with colleagues through professional organizations. In California, that organization is the California Society of Enrolled Agents (CSEA). At the federal level it is the National Association of Enrolled Agents (NAEA). We are involved in supporting and lobbying on legislation that we believe is in the best interest of our clients.
We all understand how difficult the year 2020 was and that is continuing into 2021. With the pandemic we did not have an Advocacy Day in Sacrament, but we did meet with members of the taxation committees using remote meeting technology. But, alas, that doesn't give us any fun photos to post.
In 2017 our advocacy day in the Capitol was Monday, January 9. The issues we raised related to the Power of Attorney process, public Awareness of Tax Help Day (first Saturday of February), and sales or use tax on personal services. We personally met in the offices of:
Current Legislation & Efforts
Healthcare Penalty - CSEA is endeavoring to get temporary relief from the penalty for failing to have proper medical insurance. After 2018 the federal government removed the penalty for lacking medical insurance; California instituted essentially the same penalty program effective for 2020. But as we all know, a pandemic came along and many, many people lost their employment. For many of those, with the loss of employment also came loss of their medical insurance. Furthermore, with the loss of their income they were unable to afford medical insurance from other sources. CSEA is proposing a penalty abatement program for taxpayers who demonstrate a hardship as a result of COVID-19.
Paycheck Protection Program (PPP) - In December Congress clarified their intent related to the PPP program. The loans, if forgiven, were always tax-free for federal purposes, and California conformed to that provision. But the original intent of Congress was that expenses paid with the tax-free money would still be deductible. Unfortunately, a drafting error in the Spring 2020 legislation prevented that. This was rectified in December 2020. California does not conform to this portion of the program. So expenses paid by businesses with the forgiven loan money are not deductible. That effectively makes the PPP loan money, if forgiven, taxable income for California. CSEA is striving to get conformity on this issue, but this may be very difficult to achieve. (It would mean a $4B hit to California revenue.)
Tax on Services - Regularly there are bills introduced that would levy a sales or use tax on intangible services provided to those in California. This would mean that when you visit the hair salon they would have to calculate and collect sales tax. Your plumber would need to add sales tax to his or her bill and file that with CDTFA. Your landscaper would need to charge sales tax. CSEA is opposed to a tax on services. (This is not due to having to collect tax on our own services, but our clients. We anticipate that if this passes it will typically be a boost to our businesses as we assist our business clients.) The issue is that this regressive tax would hurt many small businesses in California. It would put small businesses at a distinct competitive disadvantage compared to larger firms because these small firms do not have the finance departments to handle these filings. We are concerned that an increase on some of these services will further motivate people to attempt to self-service to their potential harm. It would create an advantage to service firms outside California who may not charge the required sales tax. Each of these will contribute to a loss of California jobs. It would create an administrative nightmare for California to manage and collect this new tax, with some projections indicating the cost to administer the tax could exceed the revenue raised.
SB104 on Small Business Taxation - this year the Legislative committees asked CSEA to evaluate and advise the committee and its representative members concerning the recently introduced bill SB104. This illustrates the strong collaborative relationship that we, through CSEA, have developed with the California Legislature over the years.
Past Successes (and a Failure)
We supported AB 525 - BOE Offer in Compromise - previously taxpayers are allowed to file or submit an offer in compromise relative to certain tax liabilities. Under previous law this right was due to expire December 31, 2017. This bill extend this taxpayer right to December 31, 2022. CSEA worked to ensure this bill was enacted into law.
We supported SB 11 - Interest and Penalties on BOE Tax Liability - prohibits the assessment of interest and penalties for failure to make timely payments if such failure is attributed to a failure of the BOE website, providing that payment is made within a reasonable time after the website outage is resolved. (It may be hard to believe, but taxpayers were being saddled with penalties and interest for no fault of their own when the BOE website or systems failed.) CSEA worked to ensure this bill was enacted into law.
We supported SB 434 - Personal Income Tax for Mortgage Forgiveness - with the mortgage crisis around 2008 both the federal and California governments enacted provisions to allow individuals to exclude from taxable income certain cancellation of debt income related to the mortgage of a personal residence provided it is based on acquisition indebtedness. On multiple cases the federal government has extended that provision, currently expired at the end of 2025. The California provision expired at the end of 2013. CSEA is working to get this bill enacted into law, but the concept had too steep of an uphill battle in both the Legislature and the Governor's office. (Failure.)
We sponsored AB 871 – Statement of Information (SOI) Filing Date Proposal – This bill would change the Statement of Information filing date from the date an entity was formed to a date based on the entity’s type (i.e., the due date for the tax return - easily remembered). Due to anticipated costs in the Secretary of State office, they are moving toward an administrative solution in lieu of this bill.
We supported 2015-2016 SB 35 – Income and corporation taxes: deductions: disaster relief: Counties of Napa, Solano, and Sonoma – This bill extended the provisions relating to disaster losses to any that are proclaimed by the Governor to be in a state of emergency and extended the time during which a taxpayer may claim the deduction. This conformed California treatment of disasters to federal treatment and accelerates aid. It removed the current requirement for the State Legislature to create and pass a specific aid bill each time there is a disaster (e.g., earthquake).
We sponsored 2013-1014 SB 1131 – Income tax: withholding: limited liability company – This bill expanded SB 1244 (see below) to include personal income tax (PIT) withholding. This bill was a technical correction to SB 1244 that inadvertently only changed the law for unemployment insurance and disability insurance withholding.
We sponsored 2009-2010 SB 1244 – Employment: taxes and contributions: limited liability company – This bill amended the payroll tax laws so that while "employee" does include owners of an LLC taxed as a corporation (where owners are paid as employees), the term does not include owners of an LLC taxed as a partnership (where owners receive guaranteed payments and not a salary or wages). This clarification resolved payroll withholding problems in the State of California for LLCs.