SB 788 lists specific classes of professionals and entities that are exempt from the state’s tax-preparer regulatory requirements, including CPAs, licensed accounting firms, attorneys, enrolled agents, trust companies, and regulated financial institutions. The bill also treats employees of those exempt entities as exempt while they work under specified supervision and signing rules.
The measure clarifies two practical points that change compliance obligations: it explicitly defines “preparation” to include inputting tax data into a computer, and it limits employee exemptions unless an exempt person signs the return (with narrow exceptions for trust companies and regulated financial institutions). The exemptions apply to returns for taxable years beginning on or after January 1, 2025, which creates immediate operational implications for employers, registrants, and enforcement bodies.
At a Glance
What It Does
Creates enumerated exemptions from the statute’s tax-preparer requirements for certain licensed professionals and institutions; extends conditional exemptions to employees supervised by those exempt persons; defines data entry as preparation; and sets an effective-date rule tied to taxable years beginning Jan. 1, 2025.
Who It Affects
Certified Public Accountants and CPA firms, active California attorneys, IRS-enrolled agents, trust companies, state- or federally-regulated financial institutions, and employees who prepare returns within those organizations; independent/unlicensed preparers and the state council that oversees preparer registration are also affected indirectly.
Why It Matters
The bill reshapes who must register as a tax preparer in California, narrows enforcement reach against certain professionals and institutions, and draws a clearer line around supervised employees and software/data-entry work — all of which change compliance workflows, signing practices, and liability allocation.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
SB 788 enumerates seven categories of people and entities that are exempt from the state’s tax-preparer requirements. Those categories include individuals and firms licensed by the California Board of Accountancy, active California Bar members, trust companies, financial institutions subject to oversight, and persons enrolled to practice before the IRS.
The bill also covers employees of those exempt organizations when they act within the scope of their employment and are supervised by an exempt person who reviews and signs the return.
The bill imposes conditions on employee exemptions. For most employees the exemption applies only when every return they prepare is signed by an exempt person listed in the statute (CPAs, CPA firms, attorneys, or IRS-enrolled agents).
There is a limited separate rule for employees of certain entities referenced elsewhere in law: those employees are exempt only if their returns are signed by the specified supervising person identified in that other provision. Crucially, the bill prohibits an employee covered by these provisions from signing a return unless the employee themselves is separately exempt, registered with the council, or is an employee of a trust company or a covered financial institution.SB 788 also clarifies scope by defining “preparation of a tax return” to include inputting tax data into a computer.
That change brings data-entry work, including work done with tax-preparation software, squarely within the law’s ambit unless an exemption applies. Finally, the bill ties its amendments to returns for taxable years beginning on or after January 1, 2025, meaning organizations must apply these rules to returns for that tax-year period when determining who must register, who can sign, and who falls within an exemption.
The Five Things You Need to Know
The statute exempts individuals licensed by the California Board of Accountancy and firms holding a current Board license from the title’s tax-preparer requirements.
Active members of the State Bar of California and persons enrolled to practice before the IRS are explicitly exempt.
Trust companies and state- or federally-regulated financial institutions are exempt for tax-preparation activities to the extent those activities are subject to federal or state oversight.
An employee’s exemption depends on supervision and signature: most employee exemptions only apply if all returns they prepare are signed by an exempt person listed in the statute; employees cannot sign returns unless they are separately exempt, registered with the council, or are employees of certain trust or financial institutions.
The bill treats inputting tax data into a computer as preparation of a tax return, and its amendments apply to returns for taxable years beginning on or after January 1, 2025.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Enumerated exemptions for professionals and entities
This subsection lists the classes of persons and entities that are not subject to the title’s preparer requirements: licensed CPAs and CPA firms, active California attorneys, trust companies, regulated financial institutions (to the extent their tax-preparation work is overseen by a regulator), and IRS-enrolled practitioners. For compliance teams, the practical effect is that possession of one of these credential- or oversight-based relationships removes the need to follow the preparer-registration and related obligations under the title.
Employee exemptions, supervision, and signing limits
The bill allows employees of exempt entities to be treated as exempt while acting within their employment, but ties that status to explicit supervising and signing behavior. Most employees are exempt only if an exempt person reviews and signs every return the employee prepares. Separate language governs employees of entities cross-referenced in Section 22251, and the statute bars employees who are merely covered under this subsection from signing returns unless they are independently exempt, registered with the council, or are employees of covered trust or financial institutions. This creates a compliance chain: organizations must track who prepares, who reviews, and who signs to ensure the employee exemption applies.
Definition of 'preparation' includes data entry
By defining preparation to include inputting tax data into a computer, the bill removes ambiguity about low-level data-entry tasks: clerks, administrative staff, or software operators who enter taxpayer information can fall within the statute unless another exemption applies. That has implications for payroll, hiring, and software vendor relationships because firms can no longer rely on a distinction between preparatory data work and preparation of a return.
Effective-date rule tied to taxable years
The amendments apply to tax returns prepared for taxable years beginning on or after January 1, 2025. Organizations must therefore apply the exemptions and the new definition of preparation to returns for that tax-year period — which affects how businesses classify employees and whether they must register preparers or change signing procedures for qualifying returns.
This bill is one of many.
Codify tracks hundreds of bills on Finance across all five countries.
Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Licensed CPAs and CPA firms — remove the need to register as tax preparers under the title, freeing them from duplicate state-level registration and related compliance tasks.
- Active members of the California Bar and IRS-enrolled agents — gain explicit statutory clarity that their client representation and tax work falls outside the preparer-regulation requirements.
- Trust companies and regulated financial institutions — preserve operational flexibility because their internal preparers are exempt where tax-preparation activity is already overseen by banking or financial regulators.
- Employers in exempt categories — can delegate data-entry and preparatory tasks to staff without forcing those employees into the state preparer registration regime, provided supervisory and signing conditions are met.
Who Bears the Cost
- Independent or small tax-preparer businesses without the listed credentials — face narrower pathways to claim exemption and therefore likely remain subject to registration, training, and oversight costs.
- Compliance offices and in-house counsel at firms claiming the exemption — must implement systems to ensure every return prepared by an employee is reviewed and signed by an exempt person or risk losing the exemption, increasing administrative burden.
- The council that manages preparer registration — may face increased complexity interpreting who qualifies as an exempt financial institution (the statute ties exemption to regulatory oversight) and enforcing signature/supervision rules.
- Software vendors and employers that use low-skilled data-entry staff — could incur costs if they need to register staff, change workflows, or restrict who may input taxpayer data to avoid regulatory exposure.
Key Issues
The Core Tension
The central dilemma is between regulatory efficiency and consumer protection: SB 788 reduces duplication by exempting credentialed professionals and regulated institutions, which preserves business flexibility, but it also narrows the state’s direct oversight of individuals who prepare returns (including data-entry staff) unless strict supervision and signing rules are enforced — a trade-off between lowering burdens on regulated professions and ensuring individual preparers are subject to consistent consumer-protection rules.
The bill resolves some ambiguity while creating new implementation and enforcement questions. The supervisory and signature-based path to employee exemption requires organizations to monitor not just who prepares a return but whether every return is signed by a qualifying exempt person.
That produces recordkeeping and procedural demands: employers will need auditable logs linking preparer, reviewer, and signer. Regulators and the council will have to decide what evidence satisfies the statute’s supervisory requirement and how to audit it.
The exemption for financial institutions is conditional — it applies “insofar as” the tax-preparation activity is subject to state or federal oversight. That phrase invites disputes about scope: which internal tax services of a bank are “subject to oversight,” and how closely must the federal or state regulator supervise tax-preparation functions?
Likewise, treating data input as preparation tightens coverage but raises practical questions about low-level clerical work, tax software workflows, and vendor relationships. Liability allocation is another unresolved area: if an exempt firm relies on employee exemptions and the supervising signer misses an error, the law does not create a new, explicit framework for shared responsibility between preparer and signer.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.