CPAs vs. Licensed Tax Preparers

The U.S. Tax Code includes many confusing rules, regulations, and deadlines. Not every individual is required to file a tax return, but most people who earn income must file taxes annually. You might be fine filing your taxes on your own if your financial situation is uncomplicated, but many people require the assistance of a trained tax professional such as a Certified Public Accountant (CPA) or a licensed tax preparer.

Deciding what type of tax professional is best for you can be a challenge. Learn the differences between various tax preparers so you can determine which best suits your specific tax needs.

What's the Difference Between a CPA and a Licensed Tax Preparer?

Certified Public Accountants (CPAs) are accounting professionals who have met education and professional requirements and have passed the four-part Uniform CPA Exam. The credential is granted by states, so education and professional requirements can vary accordingly. But all CPAs are typically required to meet certain requirements:

• Complete 150 hours of higher education with an accounting and business concentration
• Gain professional accounting experience (duration varies by state and jurisdiction, usually one to two years)
• Complete continuing professional educational (CPE) requirements to maintain credentials in the field (the duration varies by state and jurisdiction, usually 40 hours per year)

CPAs must demonstrate broad financial knowledge to earn the designation, so they tend to work in a variety of settings. CPA specialties include auditing financial records, governmental accounting, financial planning and analysis, litigation services, and tax preparation. CPAs hold the right to represent any kind of taxpaying individual or entity on any tax matter before the Internal Revenue Service (IRS).

"CPAs compile, review, and audit financial statements in addition to conducting tax work," Robert Premselaar, CPA and senior manager at Mach & Associates, told The Balance in a phone interview. "Business clients in particular often prefer to entrust their tax returns to CPAs, who serve as financial guides and have a holistic understanding of their business operations."

Business owners must often file tax estimates for their designated businesses in addition to filing their personal tax returns.

But a CPA isn't the only professional who can file taxes on your behalf. Many people and private businesses choose to pay licensed tax preparers to represent them before the IRS. Licensed tax professionals must pass the three-part Special Enrollment Examination (SEE) and complete 72 CPE hours every three years in order to represent a taxpayer. They're awarded enrolled agent (EA) status after completing all requirements. EA status is the highest credential the IRS awards.

Like CPAs, enrolled agents (EAs) are entitled to unrestricted taxpayer representation. Unlike CPAs, EAs' expertise is limited to tax matters, making them extremely well versed in their specialty. But EAs tend to lack the broad financial knowledge that CPAs have. Some tax clients may prefer a more versatile approach to the tax-filing process rather than a more specific one or vice versa.

"Because I focus specifically on tax, I am always aware of emerging trends," Roberto Done, EA, a tax accountant at D.E Caribe Taxes in the Bronx, told The Balance in a phone interview. "In fact, several of my tax clients are themselves CPAs."

Tax Preparers With Limited Representation Rights

Tax preparers hold a variety of credentials and fall into one of two categories: preparers with unlimited representation rights and those with limited representation rights. CPAs and EAs, as well as tax attorneys, have unlimited representation rights. CPAs, EAs, and tax attorneys may represent their clients before the IRS on any matter, including audits, payment or collection issues, and appeals.

Some preparers have limited practice rights. They don't hold any of these credentials. They can only represent clients for whom they've prepared and signed tax returns, and only in front of revenue agents, customer service representatives, and similar IRS employees. They're also barred from representing clients on matters of appeals or collection issues.

Tax return preparers with limited rights include:

• Annual Filing Season Program participants: These individuals are graduated members of a volunteer program that was designed to prepare taxpayers for tax season through educational courses. Those who obtain a certain number of hours of training receive a certificate of completion from the IRS. Participants must complete 15 hours of continuing education each year to maintain their certificates.
• Preparer Tax Identification Number (PTIN) holders: Preparers who have an active PTIN but no credentials and who aren't part of the Annual Filing Season Program have the authority to prepare tax returns. This is the only authority they have since Jan. 1, 2016. They can't represent clients before the IRS except on returns they prepared and filed prior to Dec. 31, 2015. PTIN holders often work at tax stores such as H&R Block.

Which Type of Tax Professional Is Right for You?

Determining the type of tax preparer who best suits your specific needs depends on your unique situation. The CPA is the gold standard of accounting credentials, and many taxpayers prefer the sense of security the designation provides. CPAs may also be a better choice for individuals and businesses who seek a broader array of accounting services in addition to tax work. Many CPAs provide financial planning and consulting services and issue financial statements for their clients.

A licensed tax preparer's focus is narrower, but this may be a great option for taxpayers who seek only tax-filing services.

You may not need a professional if your tax situation is straightforward, but both CPAs and licensed tax preparers make for great tax preparation options if your tax situation is complicated enough to warrant paying for help.

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