CPA Firms – Virtual versus Reality

CPA Firms – Virtual versus Reality

CPA Firms – Virtual versus Reality – the advent of the internet has given rise to cloud based accounting software, virtual bookkeepers, virtual controllers, virtual CFO’s. It would seem that anyone can be anywhere that they want to be, in the cloud.

Well…not so fast. The accounting profession, whether we are speaking about State Accountancy Acts, the IRS and Circular 230, or AIPCA Professional Standards have rules that govern what CPA’s can and can’t do.

Perhaps the most extreme example is IRC Sec. 7216(a) which govern privacy with respect to tax return information.

and then we have IRC Sec. 7216(b)(3) which creates an exception that includes the Regulations:

Then we have Reg. Sec. 301.7216-2(b)(2) which states:

“Tax return preparers located within the same firm in the United States. If a taxpayer furnishes tax return information to a tax return preparer located within the United States, including any territory or possession of the United States, an officer, employee, or member of a tax return preparer may use the tax return information, or disclose the tax return information to another officer, employee, or member of the same tax return preparer, for the purpose of performing services that assist in the preparation of, or assist in providing auxiliary services in connection with the preparation of, the taxpayer’s tax return. If an officer, employee, or member to whom the tax return information is to be disclosed is located outside of the United States or any territory or possession of the United States, the taxpayer’s consent under § 301.7216-3 prior to any disclosure is required.”

The takeaway being that express consent from a taxpayer is required when tax return information is being used in virtual context where the return preparers are located outside the United States.

The next situation is going to require a bit of detective work to fully understand, but there are significant concerns as we will see. Let’s start by looking a typical small firm. Here is the front page of their website [we have tried to redact personal information.]

CPA Firms - Virtual versus Reality

The firm asserts that they have expertise in working with the cannabis industry.

Let’s introduce Partner 1, CPA

CPA Firms - Virtual versus Reality

Partner 1 CPA’s bio indicates that he is licensed in numerous states throughout the US and that he specializes in cannabis taxation. [We will revisit some of this later. Notice that Partner 1, CPA’s cellphone has an 847 prefix.

Let’s move to Partner 2, CPA

CPA Firms - Virtual versus Reality

Partner 2, CPA is licensed in Illinois, and her cellphone has a 224 prefix.

The third member of the practice is Staff Acct 1.

Staff Acct., CPA is licensed in Illinois and has a cellphone with a 224 prefix.

Let’s see what services the firm offers to the cannabis industry.

The list includes a huge range of services for a three CPA firm, with Business Valuation being the most suspect, we don’t see an ABV anywhere.

Now let’s see where they tell us their offices are located, where we see some very fancy office buildings.

Now the map of area where they serve cannabis industry businesses.

Looks like we have California, Nevada, Arizona, Montana, Wisconsin, Illinois, and Maryland.

Now let’s dig a bit deeper into Partner #1 CPA’s licenses. with a trip over to our favorite tool, cpaverify.com. which tells us:

 

This is interesting. CPA Partner 1 has

Active License – Maryland

Expired – Wisconsin

No License – Illinois which is where it appear he lives based upon his cellphone prefix.

Partner 2, CPA and Staff. Acct. are licensed in Illinois

Let do the scorecard and review where this firm says it practices, and where they are licensed:

No licenses – California, Nevada, Arizona, Montana, Wisconsin, Maryland

Licenses – Illinois, Maryland

CPA Firms – Virtual versus Reality

The corporation is registered with the Illinois Secretary of State:

The corporation is also registered with the Illinois Dept. of Financial and Professional Regulation:

So the firm is licensed and domestic to Illinois. We do have one small open issue which is that it appears that Partner 1 CPA may be an officer of the firm, but we do have the provision from the Illinois Professional Corporation statute below..

It is entirely possible that everything is ok, but if we were going to hire the firm, it is certainly a question we would ask.

The Illinois statute for professional corporations states:

(805 ILCS 10/7) (from Ch. 32, par. 415-7)
    Sec. 7.
    No corporation organized and incorporated under this Act may render professional services, except through its officers, employees and agents who are duly licensed or otherwise legally authorized to render such professional services within this State. The term "employee" as used in this Act does not include "ancillary personnel" as that term is used in this Act.

The critical point to us is that there are no licensed CPA’s or the firm in the majority of the states where the firm asserts it practices. Let’s be clear, a license isn’t required for tax practice. Attest work is an entirely different matter which we aren’t going to get into. However, if one was to research the Accountancy statutes in the states where the firm asserts they do business, there certainly are additional requirements.

CPA Firms – Virtual versus Reality

It is probably appropriate for us to do show and tell since we are drawing the comparisons. Our firm has a physical presence in New York, Illinois and California.

Let’s start with cpaverify.com

Licensed in – California, Florida, Illinois, New York and Texas

The firm’s corporate registration –

and our Professional Corporation

and California

Professional License for the firm

Illinois

California

Some people might ask why did you go through all that time and effort putting this together. The answer is very simple, we are who we say we are and do what we say we do. At the present time, our cannabis practice is limited to California and just beginning to venture in to Oregon. We believe that the cannabis industry is complex enough that one state – California has just about as much complexity as we can manage.

Perhaps we aren’t as bright as some people, but we have our doubt about firms that say they serve the cannabis industry in states where they don’t have licenses or physical presence. There clearly are exceptions for services like tax compliance and bookkeeping. The reality that we have learned is that the licensing, regulatory compliance, zoning, and cultivation, excise and sales taxes are complex enough that the first two services are NOT sufficient.

We welcome your thought and comments.

CPA Firms – Virtual versus Reality

You can learn more about being physically present in California here.

Learn about the STATES Act proposal here.

 

Author: abizcannabis

Managing Director & CEO of integrated transactional financial advisory, tax, and technology consulting firm - aBIZinaBOX Inc New York, Chicago, and OaklandCPA.CITP.CISM.CGEIT.CGMAExpertise with: Alt. Investments/Private Equity, Real Estate, Professional Services, CA Cannabis, Tech Start-Ups and Distressed Assets/DebtTechnology Certifications including:Advanced & High Complexity Cloud Integrator AICPA PCPS, CAQ,, IMTA, CITP ISACA CGEIT, CISMState CPA Societies in California, Florida, Illinois, New York and TexasExpertise with Regulatory Compliance - US - HIPAA, FINRA, SEC Rule 17(a)(3)/(4), eDiscovery, FINCEN - EU- EBA, ESMA, EIOPA UK - BoE, PRA, FCA