August 7, 2017
Focus: Legal & Courts

Tax preparers, financial advisors face tougher CT oversight

Kevin Sullivan, commissioner of the Department of Revenue Services, said the commercial tax prep industry is akin to the wild, wild west.
PHOTO | Contributed
State Rep. Jason Rojas, (D-East Hartford), co-chair of the Finance, Revenue & Bonding Committee.

State lawmakers passed multiple laws this year that toughen oversight on two key professional services sectors — financial planners and tax preparers.

Both aim to crackdown on what proponents say are unscrupulous practices employed by some individuals and companies that help people with their finances or taxes.

"It's pretty much the wild, wild west out there," said Kevin Sullivan, commissioner of the Department of Revenue Services, referring to commercial tax preparers in general. "No one knows who these preparers are, their qualifications or business practices."

Sullivan's office pushed for the tax preparers' law, which has been signed by Gov. Dannel P. Malloy and goes into effect gradually starting Oct. 1. By 2019 it will require commercial tax preparers who aren't currently regulated to register with the state. It also prohibits tax preparers from imposing a fee for facilitating a refund anticipation loan, which is typically arranged by a lender that gets repaid from a borrower's federal or state personal income tax refund.

The bill, among other safeguards, also prohibits a tax preparer from involving a third party that charges interest or a fee for brokering a refund anticipation loan.

State Rep. Jason Rojas, (D-East Hartford), co-chair of the Finance, Revenue & Bonding Committee, said the law isn't intended to clamp down on certified public accountants or companies like H&R Block and Jackson Hewitt, but to regulate "pop ups," many of which open up around tax time. Often these preparers have no special background in taxes and they are hired on a "seasonal basis," Rojas said.

Tax preparers who are already regulated — including accountants, attorneys, individual enrolled agents, and IRS qualified volunteers — are exempt from the new law.

"The Department of Revenue Services didn't think there was enough regulation," Rojas said. "Some [tax preparers] were charging astronomical fees."

Rojas said there was no testimony on the bill from either side, something he was "amazed about." But he suspects as the law goes into effect, more people affected by it will speak out.

In written testimony, Sullivan said the tougher oversight is warranted because his office is seeing increased evidence of preparers' errors, unfair practices "and even fraud." That includes tax preparation by companies that set up shop to do work in time for the tax season but then vanish from the marketplace after the season is over.

Protecting seniors

Meanwhile, the new restrictions on financial planners are already in effect and are mainly aimed at protecting seniors, said state Rep. Matt Lesser, (D-Middletown), co-chair of the Banking Committee.

The law establishes advertising and disclosure requirements for financial planners not regulated by state or federal law, and prohibits those planners from advertising or promoting that they have special training, education or experience serving senior citizens unless they meet certain education requirements, including having an academic degree or certification from an organization accredited by the American National Standards Institute or National Commission for Certifying Agencies.

Financial planners must also disclose if they have a fiduciary duty to the consumer.

Early on, the proposed legislation was wider ranging and attempted to aggressively regulate all financial planners, Lesser said.

"This is limited to protecting seniors," he said.

The law faced early resistance from the Insurance Association of Connecticut, which represents insurance and financial services institutions, because it would have "created duplicative and burdensome new regulations," said Dallas Dodge, IAC's vice president.

However, Dodge said the bill was amended to eliminate conflicts with existing state and federal laws and is focused on only a small subset of financial advisors. "The insurance and financial services industry provides tens of thousands of jobs in Connecticut, and the IAC and American Council of Life Insurers are appreciative that lawmakers listened to our concerns and improved the bill," he said.

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