A GUEST POST FROM THE MISSOURI TAX GUY

{While I am on jury duty my friend and fellow twit and tax blogger Bruce McFarland of L & R Tax Preparation in Grandview, Missouri has sent me a guest post.  Bruce writes THE MISSOURI TAX GUY blog on “federal taxes, tax preparation, and your personal finances” – rdf}

Recently on LinkedIn a friend asked if she should become an EA or take the CPA exam. Many of us have asked this question of ourselves; it is what brings us to where we are today. Or maybe, like my friend, you are at this junction now.

We are all a flutter now with the new regulations that the IRS is putting on “unenrolled” tax return preparers. There is a lot of talk about who should be tested, who should do what and to what level.

In the world of tax preparation there are five fields that taxpayers look to for help them with tax issues, audits, and reviews of various types. What you decide to do, or where you decide to go with your credentials, should be based on what you want to do in the tax world and the clients you want to help.  Let’s look at the five fields so you can decide where you want to be, or be able to guide taxpayers/clients who need services you don’t necessarily provide.

1. The Enrolled Agent (EA):

An Enrolled Agent is a federally authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals. “Enrolled,” means to be licensed to practice by the federal government, and “Agent” means authorized to appear in the place of the taxpayer at the IRS.  Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. 

The EA has passed an extensive test in federal tax knowledge and must maintain an average of 24 hours of CPE each year in federal taxation.

The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department. 

2. The Accountant/CPA:

Accountants help to ensure that firms are run efficiently, public records kept accurately, and taxes paid properly and on time. They analyze and communicate financial information for various entities such as companies, individual clients, and Federal, State, and local governments. Beyond carrying out the fundamental tasks of the occupation—providing information to clients by preparing, analyzing, and verifying financial documents—many accountants also offer budget analysis, financial and investment planning, information technology consulting, and limited legal services.

Specific job duties vary widely among the four major fields of accounting and auditing: public accounting, management accounting, government accounting, and internal auditing.

A CPA, Certified Public Accountant, is an Accountant who has passed the uniform CPA examination, and who has received state certification to practice accounting.  A CPA must maintain annual CPE credits, although there is no requirement that any of these hours be in federal taxation.  The amount of required CPE varies from state to state.

3. The Tax Attorney:

Tax Attorneys are lawyers who specialize in the complex and technical field of tax law. Tax Attorneys are best for handling complex, technical, and legal issues. Typically large, and some smaller, businesses will meet with a tax attorney at least once a year to ensure that they are making the best possible business choices with regards to investments and tax issues. They generally focus only on tax issues and relief. A tax attorney may also be helpful when setting up trust funds, stock portfolios and such so a taxpayer doesn't run into unexpected surprises.

4. The Tax Preparer:

A professional Tax Preparer is an individual who prepares tax returns. A professional tax preparer can be an Enrolled Agent, an Accountant/CPA, a Tax Attorney, or anyone who prepares tax returns for a fee. I often hear tax preparers being called Accountants, but technically speaking they are not. In the early 1900s, accountants usually filled out the relatively simple forms as one of their duties. Today, with the tax preparation industry becoming a specialty all its own and the tax laws becoming increasingly complex, tax preparation is a very separate field populated by thousands of individuals that have never performed bookkeeping or accounting functions. Most are educated individuals who know how to organize tax data and how to enter it on the tax forms, and most are professional and honest, and provide excellent service to their clients.

Previously “unenrolled” Tax Preparers - those who are not an EA, a CPA or an attorney - are now required to register with the IRS, pass a competency test, and maintain 15 hours of CPE in federal taxation each year in order to be permitted to prepare federal tax returns, and will be granted the designation “Registered Tax Return Preparer” (RTRP).

5. The Bookkeeper:

A Bookkeeper is responsible for keeping accurate, up-to-date business records for proper cash flow management, balance sheet preparation, and developing expansion and investment plans. A bookkeeper also assists in filing tax returns with updated tax records. Accurate bookkeeping is a legal requirement for businesses and should be kept well within the standards that are set by local and federal tax agencies. Perhaps bookkeepers have the biggest responsibilities in a company as business planning, payroll management, and tax return preparations are dependent on accurate bookkeeping. Bookkeepers often do not have the qualifications or certifications of accountants, but the responsibility they hold is not any less. Bookkeepers that have a great deal of experience often market themselves as accountants.  Only those bookkeepers who qualify as an RTRP will be allowed to prepare federal income tax returns.

U.S. tax law is not only convoluted in structure; it also changes nearly every year. So how do you choose the right one?  You need to figure out where you want to fit in this puzzle and go from there.   

{Thanks to Bruce for providing this informative guest post – rdf}

TTFN