Does Your Tax Preparer Have the Proper Credentials?

Taxes (Photo credit: Tax Credits)

As we approach the end of the year, many people are starting to prepare for income tax season. Whether you prepare your own taxes or have a professional do it you need to gather the necessary documents. 

I use an accountant to do my taxes. I used to do my taxes myself but they became so complicated I hired an accountant. It's not cheap but I can feel sure they are done right. The last thing I want to have is any encounters with the I.R.S.

All individuals who prepare tax returns for compensation must have a preparer tax identification number (PTIN). This requirement generally applies to all attorneys, accountants, and enrolled agents who prepare returns, as well as to registered tax return preparers who are authorized by the IRS to prepare returns.

In order to become a registered tax return preparer, an individual must pass an IRS competency examination. The PTIN requirement also applies to “supervised preparers” who do not and are not required to sign returns, but who are employed by an attorney or CPA firm and who prepare returns under supervision.

Enrolled agents and registered tax return preparers are subject to continuing education requirements set by the IRS, while attorneys and CPAs are subject only to continuing education requirements (if any) required to maintain their professional credentials.

What is an Enrolled Agent?

Enrolled agents (EAs) are the only federally-licensed tax practitioners who both spe­cialize in taxation and have unlimited rights to represent taxpayers before the Internal Revenue Service. These tax specialists have earned the privilege of representing taxpay­ers before the IRS by either passing a stringent and com­prehensive three-part examination covering individual tax returns, business tax returns and representation, practice and procedure, or through experience as a former IRS em­ployee. All candidates are subjected to a suitability check conducted by the IRS.

What are the differences between enrolled agents and other tax professionals?

The enrolled agent is the most expansive license IRS grants a tax professional. Enrolled agents are generally un­restricted as to which taxpayers they can represent, what types of tax matters they can handle, and the IRS offices before which they practice.

Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all enrolled agents specialize in taxa­tion. While CPAs and attorneys are licensed by the states, enrolled agents and registered tax return preparers are fed­erally licensed. Registered tax return preparers must pass a basic, one-part exam and complete a minimum 15 hours of continuing education per year. They do not have the unlimited representation rights held by enrolled agents, CPAs and attorneys. The enrolled agent license is the highest credential the IRS issues.

The advantage of working with an enrolled agent lies not only in the depth of experience and understanding of how to prepare a tax return, but the knowledge of tax law that may be used to represent taxpayers before the IRS. If you get a letter from the IRS, or worse, are audited or are the target of a collection action, your EA can speak directly to the IRS on your behalf.

How can an enrolled agent help me?

Enrolled agents advise, represent and prepare the tax re­turns of individuals, partnerships, corporations, estates, trusts and any other entity with tax reporting require­ments. EAs prepare millions of tax returns each year and their expertise in the continually changing field of taxation enables them to effectively represent taxpayers audited by the IRS. In addition to tax preparation and tax representa­tion, many enrolled agents offer other business-related ser­vices which may include:

• Bookkeeping
• Financial planning or budgeting
• Payroll services
• Financial statement preparation
• Mortgage assistance

Are enrolled agents required to take continuing professional education?

In addition to the stringent testing and application pro­cess, the IRS requires enrolled agents to complete 72 hours of enrolled agent continuing education every three years to main­tain their licenses. The National Association of Enrolled Agents (NAEA) raises the bar even further in that its members are required to complete at least 90 hours in a three year period.

What are the key points to remember when hiring a tax professional?

Your tax needs are best served by an enrolled agent. How­ever, no matter who you hire there are certain things to keep in mind.

• Always use a qualified professional to prepare your return.
• The preparer should always sign the return and include their Professional Tax Identification Number (PTIN).
• Beware of preparers who encourage you to lie or otherwise modify your information in order to get a bigger refund.
• The taxpayer is responsible for what’s on a tax return.
• Enrolled agent continuing education requirements are met.

Reputable preparers will ask to see receipts and will ask multiple questions to determine whether ex­penses, deductions and other items qualify. By doing so, they are trying to help their clients avoid penalties, interest or additional taxes that could result from an IRS examination.

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