Every so often I read an article making some outrageous claim about Enrolled Agents (EAs) being better than CPAs, or vice versa. And then someone will quote a tax attorney who knows the theory but not application and it gets really convoluted.
When do you use an EA or a CPA or a Tax Attorney?
Right now, and for just a few more months, anyone can prepare a federal tax return and charge you for it. They don’t have to have any kind of proven ability. But, in order to talk to the IRS on your behalf, they will need to have an EA, CPA or be a Tax Attorney.
In general, an Enrolled Agent (EA) is someone who has passed a rigorous tax test given by the IRS. This allows the person to act as a POA (power of attorney) on tax matter with the IRS. EAs don’t have to have any other type of accounting training, but many started out as bookkeepers, so they have the ability to prepare accounting records as well.
A CPA is someone who has either a 4 year or 5 year degree (depending on when they graduated), have passed a test covering tax, audit, business law and financial statements, and has served an internship, demonstrating they can handle various client matters. A CPA had, at one time, to have a knowledge of tax matters, but many CPAs don’t become tax specialists and instead work in SEC, audit, non-profit or other accounting areas. So, a CPA doesn’t necessarily know about taxes.
EAs have an ethical requirement as outlined by the IRS, which is different than CPAs must follow. A CPA is registered by a State Board, not the IRS, and must pass an ethics test every few years. They are precluded from divulging information about clients. And, in fact, many states have specific statutes that convey ‘attorney client privilege’ to CPAs. (Both Nevada and Arizona, where I am licensed, have this privilege in the state statutes.)
I was astounded last year to hear of an EA who got mad at a client when he got fired. Well, not astounded that he got mad, but what he did next. He knew his client was involved in a legal battle and he turned over confidential information to the other side, even apparently doctoring up some documents in the process. Even more amazing was that this was NOT against the ethical requirements of Enrolled Agents. A CPA would lose his license if he did that.
With that warning, though, there are many very scrupulous and capable EAs working today. I’ve got friends who are EAs who might not have majored in accounting so can’t get a CPA, or just didn’t want to spend the internship time. They are absolutely professional in every way and do great work with tax work. If you have a concern about confidentiality, you might have them work under a CPA or attorney’s umbrella so that the privilege would extend.
Tax attorney who specialize in the more technical aspects of tax law. You’ll probably want an attorney to handle more complex technical and legal issues.
You definitely need a tax attorney if:
- You have a taxable estate, need to make complex estate planning strategies, or need to file an estate tax return.
- You are engaging in international business and need help with contracts, tax treatment, and other legal matters.
- You plan to bring a suit against the IRS.
- You plan to seek independent review of your case before the US Tax Court.
- You are under criminal investigation by the IRS.
- You have committed tax fraud (such as claiming false deductions and credits) and need the protection of privilege.