Interstate Mobility and the CPA Tax Practitioner:
It Does Apply to You

by Jeffrey R. Hoops and Nira Weisel
 

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.

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 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.