What to Look for in a Tax Professional

Personal Taxes, Taxes
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A pretty financial advisor listening to her clients intently

By Craig W. Smalley, EA

Learn more about Craig on NerdWallet’s Ask an Advisor

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 key tax changes.

Despite the industry’s complexity, tax preparers aren’t required to be licensed in order to charge for their services. (The IRS has attempted to enforce licensing requirements, but has been unsuccessful so far.) Anyone with a Preparer Tax Identification Number from the IRS, easily obtained in minutes online, is allowed to prepare federal tax returns.

When you’re looking for a financial professional to help with your taxes, you should choose someone who’s 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 on how they can represent their clients before the IRS in the event of an audit or other tax issues.

Attorneys are licensed by their states’ 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 — some choose not to take it — can represent you in court.

Noncredentialed tax preparers are only allowed to represent clients in an initial audit. They can’t represent clients in an audit appeal, in collections or in any payroll tax disputes. That means that while they can file paperwork for you, they can’t negotiate a deal. And they can’t represent you in U.S. Tax Court.

Types of tax professionals

As you consider where to turn for tax help, keep in mind 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’re 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’s 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 focus on taxes. In fact, only part of the licensing exam, the Uniform CPA Exam, deals with taxes. Instead, most CPAs work with companies, verifying the information on their 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’re 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.

Noncredentialed preparer

A noncredentialed preparer is a tax preparer who doesn’t have a license. These preparers don’t 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 IRS’ Annual Filing Season Program.

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 haven’t completed it, they can’t represent clients at all. With this workaround, the IRS 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’s important to choose your preparer carefully. The IRS offers a searchable database to help consumers find credentialed tax preparers and those who have completed the Annual Filing Season Program.

Craig Smalley is an enrolled agent and the founder of CWSEAPA LLP and Tax Crisis Center LLC.


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