{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
