Before You Hire a Tax Pro, Check Credentials Washington, DC, February 9, 2015—Although you may not have received all of your tax documents yet, it’s not too early to start looking for someone to prepare your tax return. But don’t trust your private financial documents to just anyone. It’s good to know exactly what your tax preparer’s credentials mean – and whether they really qualify as credentials at all.
Enrolled agents (“EAs”) and certified public accountants (“CPAs”) are both licensed and must pass testing and report continuing education hours. EAs earn their credential by passing a comprehensive exam administered by the IRS that covers individual, business, estate and trust taxation, and IRS representation, and CPAs must pass a stringent five-part test, one part of which centers on taxation. EAs are licensed by the IRS and CPAs are licensed by the individual states. Because they have a federal license, EAs are authorized to give tax advice in any state. Attorneys also have unlimited rights to represent taxpayers before the IRS, but not many of them prepare taxes. They are more often called on by taxpayers already in trouble with the IRS.
The “Annual Filing Season Program” is new this year, and you may see some preparers advertise themselves as “AFSP.” This voluntary program got its start after IRS’ efforts to require that all preparers be tested and complete annual continuing education failed because a judge ruled that IRS did not have the authority to impose the requirement. While this is not a credential, it shows that the preparer has passed a basic test and agreed to complete some continuing education each year.
Whomever you hire to do your taxes must have a Preparer Tax Identification Number (PTIN). It’s the law: anyone who prepares or assists in preparing federal tax returns for compensation must have a valid 2015 PTIN before preparing returns. Checking for a PTIN is good place to start in making sure your preparer is on the level.
Seeing initials after your tax preparer’s name does not necessarily indicate that he or she is competent, but because the tax code changes so frequently, it ‘s reassuring to know that your preparer is required to complete continuing education. EAs, CPAs, commercial firms, and seasonal tax preparers are popular choices for tax preparation, however, only EAs, CPAs and attorneys can represent a taxpayer before the IRS if there’s a problem. Enrolled agents are less well-known in some areas because there are fewer of them, but they hold the highest credential offered by IRS. “Enrolled” refers to the fact that the federal government licenses these professionals, and they are “agents” because they are authorized to appear in place of a taxpayer in dealing with IRS audits, collections, or appeals.
Enrolled agents, CPAs and attorneys are all required to meet their own licensing agency’s continuing education requirements to ensure they keep up with the ever-changing tax code. The IRS also recommends you look to see if your preparer is a member of a national professional organization, since members are often bound by a code of ethics as well as continuing education requirements.
Members of the National Association of Enrolled Agents (NAEA) are required to complete 30 hours of continuing professional education each year to maintain membership. This surpasses the IRS licensing requirement for EAs of 24 hours per year. Members are bound by a code of ethics and have access to an array of tax law resources and a network of top tax professionals. Visit the “Find an EA” directory on www.naea.org to find a qualified enrolled agent in your area who can assist you with tax planning, preparing tax returns, or resolving a problem with the IRS.