NJSCPA Legislative Update
Below are highlights of key legislation the NJSCPA is tracking. If you have any questions, contact Jeff Kaszerman, NJSCPA Government Relations Director, at 973-226-4494 x210, or jkaszerman@njscpa.org.
Appeal Bond Caps (A241) - SUPPORT
The NJSCPA and the NJ Lawsuit Reform Alliance support this legislation which limits the amount of appeal bond in civil actions to $50 million. When a defendant loses a case at trial and the plaintiff receives a monetary award, state law typically allows the plaintiff to collect that money as soon as the trial court proceedings are completed. In many cases, however, the defendant will appeal to a higher court seeking reversal of the trial court’s determination. Under current law In New Jersey, the defendant must post a bond for the full amount of the award while the appeal is pending.
With awards now reaching hundreds of millions of dollars, it is often financially ruinous for a defendant to post such a large bond and this de facto inability to appeal is used by plaintiff attorneys as a club against defendants. Defendants are forced to settle cases even though they are confident an unfair award would be lowered or dismissed at the appellate level. This legislation will help ensure that the appellate level remains open to defendants who are hit with large damages at the trial level.
The CPA profession’s concern about the impact of having to post huge appeal bonds is not just theoretical. In the last few years there have been many multi-million judgments against CPA firms. For example, this occurred in 2007 in Florida in the case of Banco Espirito v. BDO International, where the CPA firm BDO was held liable for $522 million. If Florida had not enacted legislation similar to S480/A2473 in the previous year, BDO would probably not have been able to post a bond of $522 million and would probably have gone out of business. That would have put the 2,700 people who work at BDO out of work. Instead, BDO was able to appeal and in 2010 the Florida Third District Court granted BDO Seidman the right to a new trial.
Elimination of requirement to retake CPA exam if license “unpaid inactive” 5 years (S3141 in prior legislative session, not introduced yet in new session) - SUPPORT
S314 was introduced late in the 2011 legislative session by Senator Steven Oroho (an inactive CPA in Pennsylvania), who is a strong supporter of the CPA profession. It has not yet been reintroduced in the new legislative session, but Senator Oroho indicates that it will be.
The bill eliminates the requirement that CPAs who let their license lapse for more than 5 years must retake the CPA exam to get their license back. It also creates a streamlined reciprocity process by allowing for quick licensure upon proof of out-of-state licensure from jurisdictions with “substantially equivalent” standards. The bill applies to numerous other professions as well. The NSCPA strongly supports this bill and will be working closely with Senator Oroho to push it through the legislative process.
Business Court Bill (A1696, S723) - SUPPORT
This bill establishes a Business Court as a court of limited jurisdiction very similar to the current Tax Court. The Business Court would have jurisdiction with respect to business and commercial disputes involving contracts; the Uniform Commercial Code; banking; insurance; commodities; securities; corporations; non-profit corporations; partnerships; limited liability entities and associations; business trusts; competition among businesses; business reorganizations; dispositions of businesses; business combinations; shareholder, partner and member disputes; intellectual property matters; the termination of services to a business or an agreement not to compete; employment agreements with an executive officer or manager; and other commercial disputes as provided by the court rules. The Business Court would also hear certain private actions authorized under federal law which may be heard in State court pursuant to which a federal agency regulates certain matters.
This Business Court would help to ensure that there are state judges who have the experience and expertise to handle complicated business cases. The bill is supported by the NJBIA, State Bar Association, and many other pro business groups.
Revised Uniform Limited Liability Company Act (A1543, S742) - SUPPORT
This bill repeals the “New Jersey Limited Liability Company Act,” and replaces it with a more modern regulatory scheme for the creation and operation of limited liability companies in New Jersey. The bill was developed by the National Conference of Commissioners on Uniform State Laws and is supported by the NJ State Bar Association, NJBIA, State Chamber and other pro business groups.
Passed the Assembly Regulatory and Oversight Committee on January 30, 2011.
Mandatory firm rotation for external governmental auditors - OPPOSE
In August 2008 the NJ comptroller released a report criticizing firms that do external government audits for local government units in NJ. The report called for 1) mandating audit firm rotation for government bodies every 10 years; 2) requiring government bodies to procure their auditor using a competitive selection process at least every 5 years; and 3) prohibiting governmental units from hiring any audit firm that has made any political contributions on a local or state level in the year preceding the audit engagement.
In March 2010 the comptroller released a best practices report that again called for mandatory audit firm rotation. In August the Society learned that the state treasurer was considering issuing a 10-year mandatory rotation policy for auditors of all state entities. We also learned that the NJ Division of Local Government Affairs had considered, but rejected, mandatory rotation for local government bodies.
Although the NJSCPA supports the other two reforms that the comptroller called for in his report, and has issued a white paper supporting those reforms and several others, we oppose mandatory audit firm rotation. While mandatory rotation is appealing on the face of it, in reality it puts a governmental entity at a greater risk of fraud going undetected, can easily lead to lower audit quality and is very costly. Requiring mandatory rotation leaves the new audit firm with significant startup costs and a steep learning curve, the cost of which will be passed on to taxpayers. It also leaves the door open to more fraud and waste, as the new auditors are less likely to spot suspicious transactions due to the knowledge gap they must overcome in the beginning years of taking on a new client. The NJSCPA strongly believes that mandatory rotation is counterproductive and will harm efforts to reform the governmental audit process in NJ.
It is also worth noting that audit firm rotation was specifically NOT included in the Sarbanes-Oxley federal accounting reform legislation and a 2003 United States Government Accountability Office report on the issue stated that the “GAO believes that mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence and improve audit quality considering the additional financial costs and the loss of institutional knowledge of the public company’s previous auditor of record…”
The NJSCPA reached out to other groups, the state treasurer and the governor’s office in an effort to reverse the treasurer’s proposal to require mandatory audit rotation for state entities. The State Chamber of Commerce, the New Jersey Business and Industry Association (NJBIA), the Commerce and Industry Association of New Jersey (CIANJ) and the American Institute of CPAs (AICPA) all joined with the NJSCPA in opposing the proposal. Our understanding is that the Treasurer’s proposal is now on hold. A similar effort by the NJSCPA directed to the Division of Local Government Affairs was successful and mandatory rotation is not in the list of best practices that the division issued in August.
Tax Preparers Licensing Act (A1752) - OPPOSE
This bill establishes licensing requirements for tax preparers who provide tax preparation services and creates a State Board of Tax Preparers. While the bill exempts CPAs, lawyers and enrolled tax agents, the NJSCPA and NJ State Board of Accountancy oppose the bill for the following reasons:
- In the time since the Tax Preparers Licensing Act was originally introduced in 2009 by Senator Buono, the Internal Revenue Service (IRS) has issued its own proposal to register and regulate tax preparers. After extensive review and outreach, the IRS issued a comprehensive proposal in December 2009 that applies to the same group of unregulated preparers addressed in S672/A2396. The IRS proposal, which is expected to be implemented in stages over the next two to three years, calls for mandatory registration, examination requirements, continuing professional education, ethical standards and strong enforcement procedures.
It makes little sense for New Jersey to implement its own system of tax preparer rules when the IRS has already developed rules that will cover tax preparers in this state and across the nation. Many tax preparers practice in multiple states and it will cause confusion if different states adopt varying rules and requirements. Furthermore, the last thing New Jersey needs to be doing in these times of fiscal crisis is creating a layer of government whose function will already be handled by another layer of government (in this case, the IRS).
- Creating a new class of “licensed” tax preparers will cause marketplace confusion amongst the public regarding the qualifications and skill sets of tax preparers when they are given designations such as regulated, certified or licensed. New Jersey already has certified public accountants and public accountants. Do we really want to add further confusion by creating another class called licensed tax preparers?
- Many of the concerns that prompted the introduction of S672/A2396 were addressed in legislation supported by the NJSCPA and enacted into law in 2008 (P.L.2007, c.258.) This statute, sponsored by Assembly Members Doug Fisher and Nilsa Cruz-Perez and Senator Stephen Sweeney, requires tax preparers to meet a host of standards, provides safeguards against abuses associated with refund anticipation loans and requires the Division of Banking and Insurance to promulgate regulations to carry out the provisions of the act.
Tax relief for Madoff-type fraud victims (A1965, S1217) - SUPPORT
This bill provides relief for New Jersey gross income taxpayers who suffer monetary losses as a result of certain investment arrangements that are discovered to be criminally fraudulent.
Under the bill, a taxpayer who sustains a qualified loss as a result of an investment in an investment scheme that is discovered to be criminally fraudulent and who is eligible to claim that loss as a theft loss deduction for federal income tax purposes may elect to deduct, from the taxpayer’s New Jersey gross income, certain investment income reported by the taxpayer in prior taxable years. Specifically, the bill permits taxpayers to deduct interest and dividends, capital gains or any other category of income that is reported as gross income and directly attributable to the fraudulent arrangement determined to be the source of the theft loss deduction.
The provisions of the bill stipulate that the deduction is limited to qualified losses sustained in calendar year 2008, 2009 or 2010, and may only be applied against investment income reported in each of the three taxable years prior to the year the qualified loss is discovered. The amount of the deduction excludes any income withdrawn, reimbursed, or otherwise received as cash, or as a cash equivalent, from the investment prior to discovery.
Expansion of State Auditor responsibilities (S1668) - SUPPORT
This bill revises and expands the duties and responsibilities of the State Auditor in the planning and performance of certain audits and reviews required under current State law. Under the bill, the spending, operations, and performance of all State offices and agencies will be examined on a five year cycle. The State Auditor is required to carry-out operational audits and financial post-audits of the State, its departments, institutions, boards, commissions, officers, and any other State agencies not less than once every five years, and is required to conduct performance reviews of the programs of each accounting agency, independent authority, and public entity or grantee that receives State funds not less than once every five years. Provisions of the bill also extend the five year audit cycle to the verification of monies handled on behalf of the State by county and local officials charged with the collection of certain fees and assessments.
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