Testimony Before the Pennsylvania Senate Finance Committee

Presented by William R. Lazor, CPA/PFS, CSEP
Representing the Pennsylvania Institute of Certified Public Accountants

June 7, 2005

Good morning, Senator Earll, Senator Wozniak, and members of the Senate Finance Committee. Thank you for the opportunity to present testimony on behalf of the 19,000 members of the Pennsylvania Institute of Certified Public Accountants.

My name is Bill Lazor. I am a certified public accountant and partner with Kronick Kalada Berdy & Co. PC, located in Kingston, Pa. I am also immediate past president of the PICPA. Kronick Kalada Berdy & Co. consists of eight licensed CPA partners, 20 licensed CPAs, and 20 non-licensed professionals. The majority of our clients are small businesses owned by a few individuals or family members.

The PICPA is a professional association of CPAs working together to improve the profession and better serve the public interest. Founded in 1897, the PICPA is the second-oldest and fifth-largest state CPA organization in the United States. Our members work in the fields of public accounting, private industry, government, and education.

I have provided a copy of my testimony to the Pennsylvania Business Tax Reform Commission of Aug. 2, 2004, on this same matter. I respectfully request that this be entered as part of the committee's record and will gladly answer your questions concerning that testimony.

At this time, I would like to clarify one point in my testimony to the Tax Commission. In that testimony we suggested a Board of Arbitration that would have the "authority to negotiate resolutions on a case-by-case basis…before the taxpayer has to pay." Our suggestion, not clearly articulated at the time, was to create a structure for the compromise of tax claims during the early stage of the appeals process, similar to what New York and New Jersey have in place. Taxpayers currently have no procedure to settle or compromise a tax assessment in Pennsylvania during the early stages of the process. To the best of my knowledge, we are unfortunately unique in this regard. A settlement option-before appealing to Commonwealth Court-we believe would result in timely and cost-effective tax settlements for taxpayers and the Commonwealth.

I am here today to discuss Pennsylvania's tax appeals process and the proposed Tax Review Tribunal. As a practitioner with more than 25 years of experience appearing before both the Board of Appeals and the Board of Finance and Revenue on behalf of my clients, I am qualified to provide constructive, critical analysis of the system on behalf of our members.

The PICPA strongly opposes the establishment of the Tax Review Tribunal. The current tax appeals process, while certainly not perfect, does function as it should in the vast majority of cases. For the small business or individual taxpayer with relatively straightforward issues, the current system has the advantage of being reasonably cost effective. Also, it is accessible to taxpayers without the necessity of professional representation.

According to data provided at the Business Tax Reform Commission's public hearing last summer, the Board of Appeals, which is housed and staffed by Department of Revenue personnel and is the first line for all tax liability appeals, receives between 25,000 and 30,000 appeals-ranging from personal income tax to sales and use tax-per year. The Board of Finance and Revenue, the second level of appeals, receives approximately 5,000 appeals annually. As you can see, the present tax appeals system deals with a very large number of appeals, but does so in a rather cost-effective manner for many small and medium sized businesses and individual taxpayers.

Some changes, like those suggested in our testimony last August to the Commission-such as standardizing all appeals time periods and removing the Auditor General from the corporate tax settlement process-are necessary for efficient and effective tax administration.

Our opposition to the Tax Tribunal is based on two overriding concerns. First, small and mid-sized businesses, and some individual taxpayers, would be severely and significantly affected because of the increased cost of appealing an assessment. Second, we believe that CPA practitioners will be excluded from representing their clients at the tribunal level.

Today, a corporate tax liability dispute can be appealed by a business using either a CPA or an attorney. Under the Administration's proposal, the Tax Review Tribunal would be a "board of record," meaning the business would have to proceed as if it were appealing to Commonwealth Court, which only attorneys or taxpayers acting on their own behalf can do. A typical $25,000 to $50,000 tax liability dispute would, in all likelihood, no longer be cost-effective to appeal. The cost of going through the evidentiary process for a sales and use tax case-usually very complicated because of the audit process-would easily consume the amount in dispute.

Taxpayers now have a choice in selecting who represents their interest in a tax dispute. Many, if not most, tax liability disputes do not involve legal arguments, but are disputes involving the application of accounting principles like GAAP or disputes in the mechanics of calculating the correct amount of taxes due.

The legislation does state that CPAs and enrolled agents can practice before the Tax Review Tribunal, so long as it does not "constitute the unauthorized practice of law as determined by the Supreme Court of this Commonwealth."

Our courts, however, have held that appealing real estate assessments in this state is the unauthorized practice of law. Therefore, we believe the court will quickly intervene and say that appearing before the Tax Tribunal is the practice of law, and only attorneys will be permitted to provide representation.

If the court does not intervene on its own, there certainly are other parties who will urge the Supreme Court to intervene. This point was clearly demonstrated recently by a representative of the Pennsylvania Defense Institute. Appearing before the state House Judiciary Committee on May 24, Mr. Andrew Susko, president of the PDI, told Committee members:

Finally, there are several other issues that are of importance to PDI members. These issues more generally concern the practice of law… we are concerned about recent legislative efforts to approve non-lawyers providing of services that traditionally have been considered to be and are in fact the practice of law. Whether in the unemployment compensation context or the tax appeal context, we believe allowing non-lawyer representatives to engage in traditional legal functions is not appropriate and is a matter appropriately left within the province of the Pennsylvania Supreme Court and the Attorney General Office's enforcement of the law relating to the prohibition of the unauthorized practice of law.

In closing, the PICPA would like to see improvements to the tax appeals process, and we welcome the opportunity to work with this committee and the Rendell administration to achieve that end. Creating a board of record like the Tax Review Tribunal will not accomplish that objective.

Once again, thank you for the opportunity to provide testimony on behalf of the 19,000 members of the Pennsylvania Institute of Certified Public Accountants. I will gladly entertain your questions.