Silverman Testimony

Testimony of
DAVID J. SILVERMAN, ENROLLED AGENT
CHAIRMAN
GOVERNMENT RELATIONS AND LEGISLATIVE AFFAIRS COMMITTEE
THE NEW YORK STATE SOCIETY OF ENROLLED AGENTS
before the
Committee on Higher Education of the
New York State Assembly
concerning
Proposed Amendments to the State Accountancy Statute (A.8600)
November 16, 1999

Testimony AS TO WHY A. 8600 A.8789, which would drastically change the accounting statute should be amended.

1. Enrolled Agents are enrolled to practice before the IRS pursuant to Treasury Department Circular 230 at all levels including the Appeals Division. They become enrolled to practice after having passed a two day written examination administered by the IRS in which their knowledge of the Internal Revenue Code and the regulations promulgated thereunder are tested. They must also demonstrate that they are of good character.

2. Enrolled Agents are subject to disciplinary action by the Director of Practice of the Internal Revenue Service, pursuant to the rules and regulations proscribed under Treasury Department Circular 230.

3. Enrolled Agents are required annually to complete 24 hours of continuing education in the field of taxation.

4. Enrolled Agents specialize in the field of taxation and appeals before the IRS Appeals Division. This specialization requires the use and application of tax accounting principles, which Enrolled Agents have expert knowledge of

5. Enrolled Agents are recognized by the New York State Department of Education as qualified faculty members regarding CPA and PA CPE requirements.

7, Enrolled Agents are permitted by law to represent taxpayers before the NYS and NYC Tax Appeals Tribunal and the NYS Bureau of Conciliation and Mediation Services.

1. Section l., paragraph a & b which defines the practice of the profession of public accountancy to include, "Services that include the preparation of reports for clients on..., compilations,... balance sheets, or other financial accounting or related schedules, exhibits, statements, or reports,.."

2. Section 1., paragraph e, "Providing tax advisory services or preparing on signing, as the preparer, federal, state or local tax returns for clients."

3. Section 1, paragraph d, "Keeping books, making trial balances, or preparing statements or reports, all as a part of bookkeeping operations for clients."

4. Section 1, paragraph f, "Providing financial advisory services or preparing personal financial or investment plans, or providing to clients products or services of others in implementation of personal financial or investment plans."

5. Section 1., paragraph g, "Providing of management advisory services to clients."

6. The bill doesn't amend Section 7408(e)(2) to allow the abbreviation of "EA" when used by an Enrolled Agent.

1. A.8600 attempts to redefine the definition of the practice of public accounting by including the preparation of tax returns and the rendering of tax advice in that definition., Preparing tax returns and rendering tax advise is exactly what Enrolled Agents are licensed to do. This bill is aimed at protecting CPAs, not the public. The bill is at odds with existing case law in every jurisdiction where the definition of the practice of public accounting has ever been litigated. I call you're attention to decisions rendered in Maryland, Nebraska and Louisiana (see Extracts From Decisions of Other States). Public accounting is not, nor has it ever been defined as the preparation of tax returns or the giving of tax advice.

2. Enrolled Agents are required, when preparing tax returns, to compile financial information in financial statement form as required by the tax forms they prepare. This requires the preparation of a balance sheet and profit and loss statement. The proposed bill would prevent Enrolled Agents from releasing to their clients any financial report which contained a statement that it was prepared on the basis of income tax principles and is based on the information contained in the tax return an Enrolled Agent was engaged to prepare. This part of the bill would adversely effect the 700,000 individuals and small businesses in the state that Enrolled Agents represent by denying them access to credit markets. In Campbell v. McIntyre (1932) 165 Tenn. 47,52 S. W. 2d 162 the court in striking down a similar provision stated "the restriction was for the protection of accountants certified and licensed, and not for the protection of the public in general."

3. While we support the provision of the current law that permits only Certified Public Accountants to be able to use the abbreviation CPA, we take issue with the provision that prevents Enrolled Agents from using the abbreviation "EA." No law can lay claim to the alphabet by prohibiting the use of any abbreviation ending in an "A". When this occurs, constitutional rights are violated. Treasury Department Circular 230, Section 10.6(K)(4) expressly permits the use of the abbreviation "EA" by Enrolled Agents. The United States Supreme Court has consistently ruled that whenever state and federal law conflict, the state must yield.

I call your attention to the fact that counsel for The State Education Department Office For The Professions has ruled that Enrolled Agents may use the abbreviation "EA." Enrolled Agents are tax professionals and duly licensed as such. Any law that violates their right to use the abbreviation, EA, is clearly beyond any reasonable attempt to protect the public. Any Enrolled Agent who responded to an inquiry as to what the initials EA stood for by replying that it meant anything other than Enrolled Agent would be subject to disciplinary action by the Director of Practice of the Internal Revenue Service that could lead to suspension or disbarment from practice.

In January of 1994 the American Institute of CPA's and the National Association of Boards Accountancy amended the Uniform Accountancy Act (UAA) to allow the use of the abbreviation EA by Enrolled Agents (Enclosed is a copy of an article in Accounting Today announcing the change). The UAA was also amended so that any change in Treasury Department Circular 230 will automatically be incorporated into the UAA.

4.On November 14,1998 The Uniform Accountancy Act (UAA) committee recommended to the AICPA and NASBA that the UAA be revised to allow nonlicensees to prepare compilations (see NASBA letter to our parent organization (NAEA) of November 18, 1998 which is attached).

5. Enrolled Agents perform bookkeeping services for their clients. A.8600 and A. 8789 is attempting to define this as the practice of public accounting.

6. Both A.8600 and A.8789 should be amended to conform to the objections outlined above.

Enrolled Agents must posses the unrestricted right to compile financial information in order to prepare a tax return. Their federal license requires this. On one hand, if Enrolled Agents failed to supply their clients with this financial information, when requested, they would subject themselves to disciplinary action by the Federal Government. On the other hand, under the proposed bill Enrolled Agents would be charged with violating state law if they supplied their clients with these very same financial reports. This danger is real, as the many cases (see Extract, Supra) demonstrate. These cases show that in many states, including but not limited to Oklahoma, Illinois, Tennessee, Florida, California and Texas, Enrolled Agents have been prosecuted for the kind of statutory violation. In eve such state, it has been held consistently, usually on constitutional grounds that "an accountancy act prohibiting uncertified persons from the practice of accountancy was in conflict with the spirit and express provision of the Constitution." The United States Supreme Court made this point clearly in Sperry v. State of Florida, where Chief Justice Warren so lucidly wrote, "A state may not enforce licensing requirements which, though valid in the absence of federal regulation, gives the state's licensing board a virtual power of review over the federal determination that a person or agency is qualified and entitled to perform certain functions, or which impose upon the performance of activity sanctioned by federal license additional conditions not contemplated by congress. No state law can hinder or obstruct the free use of a license granted under an act of congress."

We urge that A.8600 and A.8789 be amended so the constitutional rights of Enrolled Agents and the taxpayers they represent will not be violated. These constitutional issues include the right to prepare and issue a compilation financial report and the right to use the abbreviation EA.

The language in the proposed bills should be plain, clear and unambiguous. For example, "Nothing in any of these sections shall prohibit an Enrolled Agent from preparing or issuing what is commonly referred to as a compilation or from using the abbreviation "EA".

Respectfully submitted
David J. Silverman
Chairman,
Government Relations and Legislative Affairs Committee.

In Campbell v. McIntyre (1932) 165 Tenn. 47, 52 S.W.2d 162, the court considered a statute which made it unlawful for an ac-countant to render his services in account-ing work to more than one employer with-out first satisfying the Board of Accountan-cy of his qualifications for performing such service and receiving its certificate. The court was of the opinion that the restriction was designed for the protection of account-ants certified and licensed, and not for the protection of the public in general, and con-ferred upon this class a right to contract which was unreasonably withheld from oth-ers.

In Florida Accountants Association V. Dandelake (Fla. 1957) 98 So.2d 323, the court stated that the statute under consideration was void in that it prohibited noncertified accountants from doing routine accounting work except as employees of those holding certificates. The court held that so long as defendants, who were officers and members of the Florida, Accountants Association, did not use "the statutory title of "'certified public accountant"' or "public accountant'" or any other designation that might mislead the public into believing that they held a certificate from the state board, such members had a right to work at their chosen profession and to call themselves "accountants"' rather than "'bookkeepers".

In Burton v. Accountant's Society of Vir-ginia, Inc. (1973) 213 Va. 642,194 S.E.2d 684, the Supreme Court of Virginia con-sidered the issue of whether a person could hold himself out to the public as an accountant if he were not a certified or registered public accountant. The court found that the Virginia statute which prohibited an unregistered or uncertified person from holding himself out as being a "'certified public accountant"' or a "'registered public accountant'" could not be invoked against a person who held himself out as merely an "'accountant"' to the public.

COMPREHENSIVE ACCOUNTING SERVICE COMPANY V. THE MARYLAND STATE BOARD OF PUBLIC ACCOUNTANCY 397 A 2d 1019, 1027

[T]he legislature cannot con-sistent with the first amendment choose the most drastic remedy-the complete 3Uppres-sion of the use of certain words to describe the lawful activity of non-certified account-ants. In these circumstances, § 14(e)'s pro-hibition-on a non-certified accountant's use of the words "accountant" and "account-ing" is inconsistent with the rationale of Virginia Pharmacy. As there has been no showing by the State that a compelling need underlies the enactment of § 14(e), that provision violates Comprehensive's first amendment free speech rights. Ac-cordingly, the injunction issued against Comprehensives holding itself out to the public as "accountant" and describing the services it performs as "accounting" must be dissolved.

In 1961,Texas amended Section 8 of Its Public Accountancy Law and removed the broad prohibition which prohibited certain specified acts. It substituted, Instead, the language that only a licensed accountant may hold themselves out to the public as such.

The Texas statute, as we construe it, does not prohibit an unlicensed accountant from practicing accountancy or doing ac-counting work.. We hold that it only pro-hibits an unlicensed accountant who prac-tices public accounting' from holding him-self out to the public as an accountant. Accordingly, the judgment of the trial court is reversed, and judgment is here ren-dered that appellee be and he is hereby en-joined from using the word "accountant" on his office signs and business envelopes until he has complied with the applicable provisions of Article 41a. V.A.C.S.

It is not a case of whether one has the right to do these things, but merely that he has no right to hold himself out to the public as being able to perform them for the public.

In State ex rel. Short v. Riedell (1924) 109 Okl. 35, 233 P. 694, an action was brought by the State Board of Accountancy to pre-vent unlicensed persons from practicing accounting or holding themselves out to the public as accountants. The court noted that the legislation regulating accountants was brought about by the interest of public accountants rather than for the Public wel-fare as a person holding a certificate is recognized as having some advantage in the profession over a person not holding such a certificate. The court concluded that an accountancy act prohibiting uncertified per-sons from the practice of accountancy was in conflict with the spirit and express provi-sion of the Constitution, and void, in "that it abridges the right of private property and infringes upon the right of contract in matters purely of private concern bearing no perceptible relation to the general or public welfare, and thereby tends to create a monopoly in the profession of accountancy for the benefit of certified accountants, and denies to uncertified accountants the equal protection of the laws and the enjoy-ment of the gains of their industry." (233 P., at p. 691.) To the same effect is Frazer v. Shelton (1926) 320 111. 253, 150 N.E. 696.