Tuesday, October 18, 2011


Fellow “twit” and tax blogger Stacie Clifford Kitts, CPA, of STACIE’S MORE TAX TIPS, has added her more than 2 cents to the online discussion of EA vs CPA that CPA Joe Arsenault dealt with in his post CPA or EA? It’s Just a Designation” at CAFÉ TAX, which was brought to my attention in a “tweet”.  

Here is what she has said (the highlight is mine – I can resist it) -

 I agree with Darren as the typical person thinks CPA = Tax Knowledge, which is not a correct assumption. The CPA title does not guarantee any tax knowledge and for those who practice in other areas such as audit, no continuing education in the tax field is required. And if you acquired your license many years ago, the CPA may not have seen any tax material since he/she studied for the exam.

With that said, the EA designation has some limitations as well. Although EA's are tax focused and from a pure compliance standpoint are quite qualified, to properly consult with a client regarding their tax needs, a broader knowledge of business in an overall sense is quite handy. CPA's generally acquire this knowledge through the normal course of growing up in a public accounting environment. The benefit of a CPA in a tax practice is not in the preparation of your tax return per se, it’s in our ability to help our clients make the choices that in a forward thinking environment will help them to retain the wealth they have worked hard to achieve.

Let me respond to this portion of Stacie’s comments -

Although EA's are tax focused and from a pure compliance standpoint are quite qualified, to properly consult with a client regarding their tax needs, a broader knowledge of business in an overall sense is quite handy. CPA's generally acquire this knowledge through the normal course of growing up in a public accounting environment.

I agree somewhat with this statement, but only as it applies to business taxpayers.  And, of course, I would substitute the term “CPA” for “accountant”.  An EA is an excellent, and preferred, choice for 1040 return preparation and 1040 tax planning.

While many EAs, and previously unenrolled tax professionals who will soon be RTRPs (Registered Tax Return Preparer), also have general accounting training and experience (as I do), just as the initials CPA do not mean the person necessarily knows taxes (especially 1040 taxes), the initials EA, and RTRP, do not mean the person necessarily knows accounting. 

Obviously the best choice for a business taxpayer, especially an 1120 or 1065 filer, is a person with a combination of accounting and business and individual tax training, experience and currency.  This could be either an EA, or RTRP, or an accountant, depending on the individual qualifications of the person.

Or it could be an EA, or RTRP, and an accountant.  You may engage an accountant, experienced in your particular field or industry, to do the books and tax returns for your corporation or partnership, especially if the corporation has more than one stockholder, and an EA, or RTRP, to do your 1040.

I will always use the term “accountant” instead of CPA.  An accountant does not have to be a CPA to be knowledgeable or effective.  As I have said time and again, the only thing a CPA can do that a “plain” accountant cannot is certify an audit (and, I believe, in some states under the Uniform Accountancy Act, prepare uncertified financial statements for third parties such as banks).  The person you choose may well be a CPA, based on the individual qualifications of the professional.

I agree that a person with the initials CPA has proven knowledge and current in accounting and auditing via a very difficult initial proficiency test and annual required CPE (in accounting and audit topics and ethics), but, if initials are important to you as a verification of expertise, many states also have a PA (Public Accountant, not Certified) licensure designation.  It is my experience that, on average (and I will admit probably not always true), a CPA will charge a higher fee than a PA or “plain” accountant simply because of the existence of the initials.

Actual the question that started off the discussion was “EA vs. CPA? Which is the better designation and why?”.  I am not quite sure if the question comes from the point of view of a person choosing a career path or a potential client looking for a tax professional.

This is an unfair question, from both points of view.  They are apples and oranges.  As we have learned an EA is a tax expert, especially a 1040 expert, and a CPA is an accounting expert who can certify audits.  You become an EA because you want to represent taxpayers before the Internal Revenue Service, or because you want a designation that verifies your tax knowledge, experience and currency.  You become a CPA because you want to be a public accountant, audit financial statements, and certify these audits.  One has nothing to do with the other.  An EA can also do accounting work and a CPA can also prepare tax returns.

When choosing between the two as a career objective you must first identify your goals.  Do you want to prepare tax returns for a living and/or represent clients before the IRS, or do you want to be a public accountant and prepare and audit financial statements for businesses?  If you want to specialize in 1040 preparation there is absolutely no need to go through the process of becoming a CPA.  And, with the new RTRP designation, if you want to prepare tax returns for a living, but are not interested in representation (other than for clients whose 1040 you have prepared), you can become a RTRP.

And, in my personal opinion, if choosing between the two as a potential 1040 client pick the EA.  Whatever you do, don’t go to H+R.



Tom said...

Two things in all these discussions seem to be left out. One is what about the hundreds or maybe thousands of CPAs and their firms that send their tax work overseas to be done and then simple sign it when sent back. I have not heard any talk about these firms.

Another is concerning EA and their exams - on a facebook page called Tax Pros there was a discussion on ea exams and the answers were to say the least astounding like this one poster >

"Gleim made it so I passed without actually having really done any US tax before. I didn't do much of the learning, just lots and lots of their practice exams. Like someone said, it's learning the technique to pass the exam." or this remark " I even know some great EAs that never even have preparered a tax return and passed the SEE exam the firt time." or this remark in one post "Especially if you haven't taken a computerized standardized exam before. You can know everything there is to know about taxation but you can fail the exam based on the fact that you're unfamiliar with the format."

IMO the IRS needs to set straight standards across the board for ALL parties that do tax returns for profit. If an EA needs 20 hrs extra education then so does everyone else, if a home operated tax preparer needs to take an exam every 3 yrs then so does eveyone else regardless of whatever intials one has.

Lastly about the RTRP test - how about letting this test be considered equal to part 1 of the EA exam for those who wanted to become an EA after they got their RTRP letters? After all it's not whether you know anything about taxes, it's all about knowing how to take a test...

Unknown said...

Thanks for clearing up information on CPAs. I agree that many people wrongly think of them as only doing taxes. They are accountants! Not tax experts. I am sure there are some great ones that are fabulous with taxes but just because they are a CPA doesn't mean they can work miracles with your tax return. That is why doing research is important before you chose who to give your business to!