Tax preparers: exemptions.

Senator Niello’s Senate Bill 788 reframes the tax-preparer regulatory landscape by broadening exemptions to cover licensed accounting professionals, individuals authorized to practice public accountancy, and associated firms, with the changes taking effect for tax returns filed for 2025 and later. This represents a shift in which categories of practitioners and entities are subject to the Tax Preparation Act’s registration and disclosure requirements, expanding scope to include board-licensed CPAs, authorized public-accountancy practitioners, and firms with board-issued licenses.

The bill reorganizes the exemptions under Section 22258 to specify that an individual holding a current and valid California Board of Accountancy license or authorized to practice public accountancy is exempt, as is a firm and its personnel if the firm holds a current and valid board license. It also exempts active members of the State Bar, trust companies or trust businesses, state- or federally regulated financial institutions, IRS-enrolled individuals, and certain employees who operate under supervision by an exempt signer. Importantly, the exemption for many employees applies only if all returns are signed by an exempt person or, for some categories, by a signer described in the exemption. The bill also clarifies that “preparation” includes inputting tax data into a computer, and retains a requirement that signing and supervision arrangements be met for those employees who rely on exemptions.

From an enforcement and oversight perspective, the bill preserves a framework in which exemptions reduce the regulatory obligations for the newly covered categories while maintaining signer-based accountability for tax returns. It does not alter penalties or enforcement mechanisms within the Tax Preparation Act, but it does require changes to administrative guidance and processes at the California Tax Education Council (CTEC) to reflect the expanded exemption set and the associated signing rules. The amendments apply prospectively to 2025 tax-year filings, signaling a near-term administrative implementation for regulatory agencies and affected entities.

Stakeholders subject to or benefiting from the exemptions include CPAs and board-licensed firms, active Bar members, trust and financial institutions, and IRS-enrolled agents, along with employees supervised by exempt signers. Non-exempt preparers and smaller entities would continue to fall under the existing registration and disclosure requirements. The bill relies on cross-references to existing statutes governing public-accountancy practice and financial-institution regulation, which may necessitate regulatory clarifications for terms like “firm license” and the distinction between being licensed versus authorized to practice, as well as practical interpretation of the sign-off rules for various exempt categories.