What to look for in a tax professional
Tax laws are living and breathing. They change frequently. As a tax professional, I spend the first two hours of my day reading law updates just to stay abreast of听.
Despite the industry鈥檚 complexity, tax preparers aren鈥檛 required to be licensed in order to charge for their services. (The Internal Revenue Service has听, but has been unsuccessful so far.) Currently, anyone with a听听from the IRS, easily obtained in minutes online, is allowed to prepare federal tax returns.
When you鈥檙e looking for a financial professional to听, you should听choose someone who鈥檚 licensed and required to obtain continuing professional education, such as an enrolled agent (EA), a Certified Public Accountant (CPA) or an attorney. You should also look for someone who specializes in taxation.
Representation rights
Credentialed preparers have another big but less obvious advantage: They have no restrictions听on how听they can represent their clients before the IRS in the event of an audit or other tax issues.
Attorneys are licensed by their states鈥� bar associations and can practice before most courts, including the U.S. Tax Court. Among EAs and CPAs, only those who have passed the U. S. Tax Court exam 鈥� some choose not to take it 鈥� can represent you in court.
Non-credentialed tax preparers are only allowed to represent clients in an initial audit. They can鈥檛 represent clients in an audit appeal,听in collections or in any payroll tax disputes. That means that while they can file paperwork for you, they can鈥檛 negotiate a deal. And they can鈥檛 represent you in U.S. Tax Court.
Types of tax professionals
As you consider听, keep in mind听the credentials, representation rights and specialties of four common types of tax professionals:
Enrolled Agent (EA)
The EA designation is the only one the IRS grants to tax professionals. EAs must take a rigorous IRS exam and meet continuing education requirements each year. They鈥檙e federally licensed and allowed to practice in all 50 states, and they can represent taxpayers before the IRS without restrictions.
Certified Public Accountant (CPA)
The CPA designation is administered by each state鈥檚 board of accountancy. CPAs must take the qualifying exam given by the board and, like EAs, must receive a certain number of continuing education credits each year.
CPAs are allowed to represent taxpayers before all administrative levels of the IRS, but only some听focus on taxes. In fact, only part of the licensing exam, the听, deals with taxes.听Instead,听most CPAs work with companies,听verifying the information on their听financial statements.
Attorney
Attorneys, or lawyers, are licensed to practice law by the states. They must pass a qualification test known as the bar exam in the state where they鈥檙e听going to practice. All attorneys can represent taxpayers before all levels of the IRS, regardless of whether they specialize in taxes.
Attorneys are required to have continuing legal education each year, but have no specific education requirements regarding taxes.
Non-credentialed preparer
A non-credentialed preparer is a tax preparer who doesn鈥檛 have a license. These preparers don鈥檛 have to pass a test, nor are they required to take continuing professional education classes each year. Examples of unlicensed, unenrolled tax preparers include those who are supervised by attorneys, CPAs or EAs, or are participants in the听.
Such preparers have limited representation rights before the IRS. Beginning in 2016, in order for unenrolled preparers to represent taxpayers on returns they have filed, they must have completed the Annual Filing Season Program. The program is voluntary, but if preparers听haven鈥檛 completed it, they can鈥檛 represent clients at all. With this workaround, the听IRS听can make sure preparers are reasonably educated before representing taxpayers.
Finding a tax professional
Each type of credentialed preparer has different education requirements and specialties, so it鈥檚 important to choose your preparer carefully. The IRS offers a听听to help consumers find credentialed tax preparers and those who have completed the Annual Filing Season Program.
听is an enrolled agent and the founder of听听and Tax Crisis Center, LLC. Learn more about Craig on Nerdwallet's .听
This article first appeared on 听听
