5 Types of Tax Preparers

Tax preparers play an essential role in today’s business world. But did you know there are 5 different types of tax preparers? This article will discuss each type and how they differ.

Categories of Tax Preparers

According to the IRS, any tax preparer with a PTIN (Preparer Tax Identification Number) can legally prepare federal tax returns for compensation. However, their levels of experience, expertise, and education can vary.

Their ability to represent clients in IRS cases also varies. The IRS refers to these differences as “representation rights.” Tax attorneys, CPAs, and EAs are the only professionals with unlimited representation rights. That is, they can represent any client in any matter before any IRS office. These matters could include federal tax issues as diverse as audits, appeals, and tax payment issues.

The 5 types of tax preparer are:

1. An undesignated preparer with a Preparer Tax Identification Number (PTIN)
2. A preparer in the IRS Annual Filing Season Program (AFSP)
3. Enrolled Agent (EA)
4. Certified Public Accountant (CPA)
5. Tax Attorney

Undesignated

Anyone with a Preparer Tax Identification Number (PTIN) can prepare federal tax returns for compensation. Especially during the busy tax filing season, there is a need for undesignated return preparers.  In many states, anyone can call themselves a tax preparer with no experience or education required. Some states, including California and Maryland, require tax preparers to register and meet certain educational requirements.

With a few exceptions, the IRS requires all paid preparers of tax returns, including claims for federal tax refunds, to have a PTIN. No matter what state you work in, your PTIN will be valid since the IRS provides it.

Benefits

Such individuals doubtless work for cheap, but really, if you're willing to have someone with no qualifications do your taxes, you might as well do them yourself and save some money.

Requirements

The most basic requirement is to have a PTIN. The PTIN application is available online from the IRS and only takes about 15 minutes to complete. And even better, you don’t have to pay any fees to get a PTIN.

Certain tax preparers are required to get a PTIN, including all Enrolled Agents. If you plan to prepare tax forms for pay (except for this short list of federal forms from the IRS), you need a PTIN.

Annual Filing Season Program (AFSP)

The IRS’s Annual Filing Season Program (AFSP) recognizes un-credentialed tax return preparers who want to reach more advanced proficiency levels. These preparers are roughly on a level with state-certified tax-preparers or perhaps a little above, as they usually have stiffer continuing-education requirements. The IRS created the program to encourage ongoing education and to better prepare professionals for filing season. AFSP holders are rarely CPAs, EAs, or tax attorneys.

Requirements

The AFSP requirements are relatively straightforward:

• Obtain 18 hours of continuing education (CE) from an IRS-approved provider. At least 6 of these hours must be a refresher course with a final test in federal tax law updates. Ten CE hours must be in other issues in federal tax law. Plus, candidates need 2 CE hours in ethics.
• Have and maintain a PTIN.
• Agree to certain obligations in IRS Circular 230, Subpart B, Section 10.51. These standards list forbidden conduct for AFSP candidates, including federal convictions related to tax law offenses and dishonest behaviors.

Benefits

Once candidates meet these requirements, the IRS adds them to a public list of tax return preparers called the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. The list includes all AFSP holders plus other tax preparers like tax attorneys and CPAs.  However, AFSP holders have limited practice rights for federal returns that were prepared after December 31, 2015. If they prepared and signed a client’s return, they can represent that client. However, they can only do so before specific IRS agents.

Enrolled Agent (EA)

The EA, or enrolled agent credential, is the highest tax return agent designation granted by the IRS. An EA tax preparer has demonstrated expertise in federal taxation. EAs are federal tax experts with high levels of knowledge in tax collection matters, appeals, and audits.

Benefits

Enrolled Agents can represent their clients in cases with the IRS. Clients know that they can trust EAs because they have the highest level of tax expertise. They also have unlimited practice rights, just like tax attorneys and CPAs.

Requirements

To get the EA certification, candidates must meet these requirements:

• Get and maintain a PTIN
• Pass a 3-part exam from the IRS called the Special Enrollment Exam (SEE). It covers complex topics related to individual and business federal tax returns. Candidates must also demonstrate skills in tax planning and representing clients in cases before the IRS.
• Adhere to ethical standards outlined by the IRS.
• Get at least 72 hours of CE every 3 years.

However, some employees who have worked for the IRS for at least 5 years can skip the exam. These select employees interpret the federal tax code on a regular basis. So, they don’t have to meet this EA requirement because their jobs already require them to have a high level of federal tax law knowledge.  EAs can also practice in any US state or territory. In contrast, the licenses for CPAs and attorneys are granted at the state level, so if you hold a license in one state you might not be able to practice in other states. However, since the IRS grants the EA at the federal level, the EA credential is valid all over the United States.

Certified Public Accountant (CPA)

The Certified Public Accountant credential is granted by 55 Boards of Accountancy (one in each US state and territory). CPAs are often the go-to choose for anyone with a complex tax situation. Unlike enrolled agents, they're certified at the state level, rather than the federal level. A CPA's primary purpose is accounting, but many specialize in tax preparation and planning. Some CPAs have obtained additional certifications such as the CTRS (Certified Tax Resolution Specialist or NTPI Fellow, which means they have spent years furthering their education in Tax Resolution.  Such CPAs are an excellent choice if you have a complicated tax return or want to minimize your tax bill by trying something a little tricky.

One reason you might prefer a CPA to an EA would be if you want to retain him/her for other services in addition to tax preparation, such as preparing financial reports for your business. However, it's wise to check out the CPA in question and confirm that they're in fact a tax specialist before entrusting them with a complex return. Like enrolled agents, CPAs have unlimited practice rights before the IRS. (I should disclose here that I'm a CPA, CTRS, JSM Tax, and NTPI Fellow, and so I might be slightly biased in this matter.)

Benefits

CPAs can experience many professional benefits, including:

• Higher pay than their uncredentialled peers. In fact, CPAs are among the highest-paid accountants.
• Many CPAs leverage their knowledge into business positions like CFO, Corporate Controller, Cost Accountant Manager, and even Vice President.
• CPA positions are usually stable because companies consistently need the services which they provide.

Requirements

Each Board of Accountancy establishes the guidelines to become a CPA in their jurisdiction. However, in general, CPAs must meet the requirements, called the 3E’s: education, exam, and experience:

• Education: Almost all jurisdictions require 150 hours of education, which is equal to a master’s degree at most universities
• Exam: Pass the 4-part CPA Exam, a difficult exam with low global pass rate that hover around 50%
• Experience: Depending on the jurisdiction, have 1 or more years of qualified experience working in the public accounting field.

CPA tax specialists can also do tax preparation and tax planning. And they have unlimited representation rights in their clients’ cases in front of the IRS. So, if you want a credential that has some professional flexibility, you could consider the CPA.

But keep in mind that the CPA is a license granted at the state level. If you want to work in multiple states that don’t have reciprocity agreements, you’ll have to get the license in each jurisdiction.

Tax Attorney

The role of an Enrolled Agent vs. tax attorney can be similar. Tax attorneys can prepare tax returns, advise clients on tax matters, and represent clients with the IRS.

Benefits

Tax attorneys have unlimited representation rights before the IRS. That means they can help an extensive range of clients. Plus, (with the exception of someone have a United States Tax Court Practitioner (USTCP) designation), only tax attorneys can represent clients in Tax Court. That fact alone gives them an advantage over other types of tax preparers, including Enrolled Agents and CPAs.

Requirements

Tax attorneys are licensed by state courts or their designees, like state bars. In general, attorneys must

• Have a law degree.
• Pass the Uniform Bar Examination before licensure.

Here are ten tips for taxpayers to remember when selecting a preparer:

1. Check the Preparer’s Qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool helps taxpayers find a tax return preparer with specific qualifications. The directory is a searchable and sortable listing of preparers.
2. Check the Preparer’s History. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to the verify enrolled agent status page on IRS.gov or check the directory.
3. Ask about Service Fees. Avoid preparers who base fees on a percentage of the refund or who boast bigger refunds than their competition. When asking about a preparer’s services and fees, don’t give them tax documents, Social Security numbers or other information.
4. Ask to E-File. Taxpayers should make sure their preparer offers IRS e-file. The quickest way for taxpayers to get their refund is to electronically file their federal tax return and use direct deposit.
5. Make Sure the Preparer is Available. Taxpayers may want to contact their preparer after this year’s April 17 due date. Avoid fly-by-night preparers.
6. Provide Records and Receipts. Good preparers will ask to see a taxpayer’s records and receipts. They’ll ask questions to figure things like the total income, tax deductions and credits.
7. Never Sign a Blank Return. Don’t use a tax preparer who asks a taxpayer to sign a blank tax form.
8. Review Before Signing. Before signing a tax return, review it. Ask questions if something is not clear. Taxpayers should feel comfortable with the accuracy of their return before they sign it. They should also make sure that their refund goes directly to them – not to the preparer’s bank account. Review the routing and bank account number on the completed return. The preparer should give you a copy of the completed tax return.
9. Ensure the Preparer Signs and Includes Their PTIN. All paid tax preparers must have a Preparer Tax Identification Number. By law, paid preparers must sign returns and include their PTIN.
10. Report Abusive Tax Preparers to the IRS. Most tax return preparers are honest and provide great service to their clients. However, some preparers are dishonest. Report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157 PDF, Complaint: Tax Return Preparer. If a taxpayer suspects a tax preparer filed or changed their return without the taxpayer’s consent, they should file Form 14157-A PDF, Return Preparer Fraud or Misconduct Affidavit.

Finding your tax preparer

Once you've decided which level of tax expertise you'll need, hit the IRS Tax Preparer Directory to find a preparer of that level in your area. The directory lists tax preparers with active certifications in the region you select. It doesn't provide contact info, though; for that you'll need to turn to your state's CPA society or board of accountancy (for CPAs), the NAEA (for Enrolled Agents), or your favorite search engine.