By James J. Newhard, CPA

I often tell clients that most people believe taxes are a good thing … for someone else to pay. Transparency is a lot like that. We’re all for it … until it disrupts our own lives.

Beginning Nov. 1, 2024, a new Philadelphia ordinance will require tax preparers to provide clear information about their services and fees before they begin working with clients. Passed by City Council on May 16, 2024, and signed into law by Mayor Cherelle Parker on May 29, 2024, the legislation—introduced by Councilmember Rue Landau—amends Chapter 9-600 of The Philadelphia Code, titled “Service and Other Businesses.” The ordinance establishes new rules for businesses offering tax preparation services in the city. The goal is to try to ensure that consumers who are not financially sophisticated are not gouged or over-charged, and to let such folks know of possible free tax preparation alternatives.

Under the new mandate, tax preparers must provide consumers with a detailed list of the services they offer, including costs and potential additional fees. Before moving forward with any services, consumers will be required to sign an acknowledgment document to affirm that they have received and understood this information. This acknowledgment can be completed digitally, ensuring transparency throughout the process.

Additionally, the Philadelphia Department of Revenue was assigned the responsibility to publish a list of free tax preparation services that are available to city taxpayers. Early drafts of the bill included a requirement for tax preparers to share this list with potential clients, but this provision was removed from the final version.

Violators of the ordinance face a $500 fine, and consumers who are harmed by noncompliance have the right to sue for damages. The PICPA, along with other business groups, engaged Landau to address concerns about the bill and worked collaboratively to shape the final version.

Legislative Clarifications

The ordinance defines consumers as, “An individual or couple filing taxes jointly or a business consisting of a self-employed person, but not including a business with one or more employees other than the business owner.” So, it includes individual taxpayers and small businesses that are solely owner-involved and do not have nonowner employees. The ordinance was silent as to businesses that use multiple subcontractors or that hire related family members who are not owners. It might be prudent to err on the side of compliance.

In an FAQ-type follow-up to get more clarity and understanding about the disclosure of costs, Landau’s legislative director clarified that the ordinance does not require preparers to provide a fixed amount when providing costs; the intent, rather, is simply to require preparers to provide transparent estimates to consumers, up front, no matter what the practitioner’s pricing model.

Another FAQ addressed how practitioners can protect themselves from lawsuits or claims simply because the taxpayer did not like the tax outcome of the services provided. The director indicated that if the acknowledgment discloses the proposed engagement services, the costs of those services, other available services and their related costs, and if the consumer signs/affirms that they have read and understand the information regarding the tax services, then the practitioner would be safe from a compliance perspective. The risk management folks who work with professional liability insurance at CNA Financial Corporation advised that practitioners scan and retain such signed acknowledgments in perpetuity because no statute of limitations has been specified in the ordinance.

While the final ordinance assigns responsibility to advise consumers about possible free tax preparation services options, CNA suggests an acknowledgment refence to the ordinance (Philadelphia Tax Code Section 9-640) and perhaps sharing the Philadelphia Department of Revenue’s webpage that provides the free tax preparation option information.

Closing Thoughts

As tax season approaches, Philadelphia tax professionals should be prepared to comply with these new requirements to ensure transparency and avoid penalties.

Initially, this may seem to be an issue for CPAs in the Philadelphia market and not for CPAs across the state. However, legislation that aims to be protective often appeals to other jurisdictions with similar concerns, leading to “legislative plagiarism.” Case in point: this Philadelphia-specific legislation is similar to 2023 legislation implemented in Albuquerque, N.M., as transparency is a hot topic. As the saying goes, forewarned is forearmed.

James J. Newhard, CPA, is a sole practitioner in Paoli, a CPE presenter, and serves on numerous state and chapter technical A&A and tax committees. He is a member of the Pennsylvania CPA Journal Editorial Board and serves on the AICPA Joint Trial Board committee. Newhard can be reached at jim@jjncpa.com.

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^{Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.}