CPA vs enrolled agent vs tax preparer

CPA, enrolled agent, attorney and preparer compared

What IRS representation covers

Representation means dealing with the IRS on your behalf. The IRS describes unlimited representation as the right to represent clients on any matter, audits and appeals included. Circular 230, the Treasury rules for practice before the IRS, lets any attorney, CPA or enrolled agent do this unless they are suspended or disbarred from IRS practice.

Annual Filing Season Program participants have limited rights. They may represent only clients whose returns they prepared and signed, and only before revenue agents, customer service representatives and similar IRS employees, including the Taxpayer Advocate Service. They cannot take a case to appeals or handle a collection matter, even for a return they prepared. A preparer with only a PTIN has no representation rights for returns prepared after 31 December 2015.

Representation runs on a power of attorney

A representative acts for you under Form 2848, Power of Attorney and Declaration of Representative, and must be a person eligible to practice before the IRS. The third-party designee checkbox on a return is narrower. It lets the named person discuss that return’s processing and refund status with the IRS for one year from the original due date, and it gives no authority in an audit or other compliance matter. Form 8821 is a separate authorization to receive and inspect your return information.

CPA: a state license that also covers audits

A certified public accountant is licensed by a state board of accountancy after passing the Uniform CPA Examination and meeting the state’s education and experience requirements. To keep an active license, a CPA completes continuing education and follows ethics rules.

Audit and review reports on financial statements are reserved to licensed CPAs, and each state attaches conditions. In California, a CPA may sign audit, review, prospective financial information and agreed-upon procedures reports only if the license shows “A”, meaning at least 500 hours of attest experience. Florida requires every CPA firm to be licensed and lets CPAs practice only through one. Michigan requires a simple majority of a firm’s equity and votes to be held by licensed CPAs, and all attest and compilation work to be supervised by one. In Delaware, only a holder of a CPA Permit to Practice, or a CPA with practice privilege from another state, may practice as a CPA.

The California board’s chart also lists work that non-CPAs may do: bookkeeping, tax services, representation before government agencies, consulting and financial planning. A CPA license on its own says little about tax depth. The IRS notes only that some CPAs specialize in tax preparation and planning, so ask how many returns like yours the CPA prepares each year.

For audit or review work, the California board suggests asking about the CPA’s recent peer review. Michigan makes a licensed firm that performs audits, reviews or compilations show a peer review from the previous three years when it renews.

Enrolled agent: an IRS license for tax only

An enrolled agent is licensed by the IRS, which calls it the highest credential it awards. A candidate needs a PTIN and passing scores on all three parts of the Special Enrollment Examination, which tests tax planning and return preparation for individuals and businesses as well as representation. The IRS then runs a suitability check of the candidate’s own tax filings and criminal background. Certain former IRS employees qualify through their technical experience instead of the exam.

Once enrolled, an EA completes 72 hours of continuing education every three years and keeps a valid PTIN. Like attorneys and CPAs, enrolled agents are generally unrestricted in whom they represent and in the tax matters and IRS offices they deal with. The license is federal and covers tax only; it gives no authority to audit or review financial statements.

Tax attorney

Attorneys are licensed by state courts or their designees, such as the state bar, and have unlimited representation rights before the IRS. The U.S. Tax Court treats them differently from CPAs and enrolled agents. It admits an attorney on a current certificate of good standing from a bar, while anyone who is not an attorney must pass the court’s written examination, held at least every two years, and be sponsored by two people already admitted. If a dispute is heading to Tax Court, ask whether your representative is admitted there.

AFSP preparer: a record of completion, not a license

The Annual Filing Season Program is voluntary. A preparer who is not an attorney, CPA or EA completes 18 hours of continuing education, including a six-hour federal tax law refresher course with a test, renews their PTIN, and consents to the obligations in Circular 230. The IRS then issues an Annual Filing Season Program Record of Completion. Preparers exempt from the refresher, such as those who passed the former Registered Tax Return Preparer test, need 15 hours.

The record puts the preparer in the IRS directory and carries the limited representation rights described above. It is earned for a specific tax year, so check that it covers the season your return was filed in.

PTIN-only tax preparer

Anyone can be a paid tax return preparer with an IRS Preparer Tax Identification Number. Everyone who prepares or helps prepare a federal return for pay needs one, renewed every year for $18.75. The PTIN is an identification number that goes in the paid preparer section of the return.

For a preparer with no credential and no AFSP record, the PTIN is the only authority they have: to prepare returns. They must sign each return and enter their PTIN; one who refuses is what the IRS calls a ghost preparer. They do not appear in the IRS directory.

Bookkeeper

Bookkeeping needs no license. California’s board lists it among the services non-CPAs may perform. A bookkeeper who also prepares returns for pay needs a PTIN like any other preparer, and in California a CTEC registration. Without an EA, CPA or attorney credential, a bookkeeper cannot represent you before the IRS. If a bank or investor wants the statements reviewed or audited, that report has to come from a licensed CPA.

California’s extra rule for tax preparers: CTEC

California requires anyone who prepares tax returns for a fee and is not a CPA, an enrolled agent or an attorney to register with the California Tax Education Council. Registrants need 60 hours of qualifying education, 20 hours of continuing education a year, a $5,000 surety bond, a PTIN and a background check, and they renew between 1 August and 31 October. The rule applies even to preparers who do only federal returns, and unregistered preparers face penalties of up to $5,000 per violation.

CTEC registration does not add IRS representation rights. A registrant gets limited rights only by also earning an AFSP record, and active registrants who complete their 20 CTEC hours are generally exempt from the refresher course. How to look up a registrant is covered in how to verify a CPA license.

Who oversees each one, and where to complain

CPAs answer to their state board of accountancy and attorneys to their state bar. On the federal side, the IRS Office of Professional Responsibility enforces Circular 230 against attorneys, CPAs and enrolled agents, and it also has jurisdiction over AFSP participants. Its sanctions range from censure through suspension and disbarment from IRS practice to monetary penalties. Misconduct by any paid preparer, including one who claims a credential they do not hold, can be reported to the IRS on Form 14157.

Florida’s accountancy board does not investigate tax preparers unless they break the accountancy law or hold themselves out as CPAs. In California, complaints about unregistered preparers and CTEC registrants go to CTEC, which works with the Franchise Tax Board; complaints about CPAs go to the California Board of Accountancy.

Which one to hire

Before hiring, confirm the credential on the official lookup. Firms in the directory are listed by state for California, Florida, Michigan and Delaware.