CHAPTER 32
Working with CPAs and Other Tax Professionals
According to the National Small Business Association's Small Business Taxation Survey, 85% of small businesses use an external tax practitioner to prepare their returns; only 15% do it in-house (by owners or staff). There are several compelling reasons for this: the complexity of tax rules; continual changes in tax rules; the variety of tax returns that must filed for income, employment, and excise taxes; and the time it takes to address tax responsibilities.
If you work with a tax pro or are thinking of doing so, be sure you select the appropriate professional for your situation. This chapter explains what to look for. It also provides important tips in finding and vetting a tax professional.
Types of Tax Professionals
There are various types of tax professionals. They have different levels of education, skills, and continuing education requirements. They also have different representation rights in dealing with the IRS.
Attorneys
Attorneys are licensed by state courts, the District of Columbia or designees of courts of the states or the District of Columbia, such as the state bar. Usually, they have earned a degree in law and have passed a bar exam. Attorneys generally have ongoing continuing education and professional character standards.
Attorneys may offer a range of services. Some attorneys specialize in tax preparation and planning; others may litigate tax cases. Any information you share with an attorney is privileged; the IRS cannot obtain this information.
Attorneys have unlimited representation rights before the IRS. This means they may represent their clients on any matters including audits, payment/collection issues, and appeals.
CPAs
Certified public accountants (CPAs) are licensed by state boards of accountancy, the District of Columbia, and U.S. territories. CPAs have passed the Uniform CPA Examination after having completed a program of study in accounting at a college or university. They must also meet experience and good character requirements established by their respective boards of accountancy. In addition, CPAs must comply with ethical requirements and complete specified levels of continuing education in order to maintain an active CPA license.
CPAs may offer a range of services. Like attorneys, some CPAs specialize in tax preparation and planning. Like attorneys they have unlimited representation rights before the IRS.
CPAs only have limited confidentiality with respect to information you share with them. Under a federal statute (Code Sec. 7216), confidentiality extends only to communications regarding federal taxation that would be confidential if made between you and an attorney. The American Institute of CPAs (AICPA) offers guidance to its members on the scope of this privilege (AICPA Code of Professional Conduct at Section 1.700.001). However, some states recognize accountant-client privilege, including Colorado, Florida, Missouri, and Pennsylvania.
Enrolled Agents
Enrolled agents are tax professionals licensed by the IRS. Enrolled agents are subject to a suitability check and must pass a 3-part Special Enrollment Examination, which is a comprehensive exam that requires them to demonstrate proficiency in federal tax planning, individual and business tax return preparation, and representation. They must complete 72 hours of continuing education every 3 years. Like attorneys and CPAs, they have unlimited representation rights before the IRS.
Annual Filing Season Program Participants
This voluntary program recognizes the efforts of return preparers who are generally not attorneys, certified public accountants, or enrolled agents. It was designed to encourage education and filing season readiness. The IRS issues an Annual Filing Season Program Record of Completion to return preparers who obtain a certain number of continuing education hours in preparation for a specific tax year.
They may only represent clients whose returns they have prepared and signed, and only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare the return in question.
Other PTIN Holders
Tax return preparers who have an active preparer tax identification number, but no professional credentials and do not participate in the Annual Filing Season Program, are authorized to prepare tax returns.
Beginning January 1, 2016, this is the only authority they have. They have no authority to represent clients before the IRS (except regarding returns they prepared and filed prior to this date).
Payroll Providers
Payroll services and professional employer organizations may file employment tax returns for small businesses; they do not prepare income tax returns.
Finding a Tax Professional
You know you need a tax professional, but how do you find one? As with a family doctor, it's always wise to get a referral from someone you know and trust (perhaps your banker or insurance agent). If you don't have such a referral, here are some other ways to find professionals.
Local Chamber of Commerce
If you belong to a local chamber of commerce or other trade association, there usually is a directory of members. Check for tax return preparers or firms providing the services you seek.
Professional Organizations
Attorneys, CPAs, and enrolled agents have various professional organizations that you can contact, directly or online, to find a professional near you. These organizations include:
American Academy of Attorneys—CPAs at www.attorney-cpa.com/eweb/DynamicPage.aspx?Site=AAA-CPA&WebCode=IndSearch. The members of the AAA-CPA are dually-qualified as attorneys and CPAs.
American Institute of Certified Public Accountants at www.aicpa.org/ForThePublic/Pages/ForthePublic.aspx. This is the largest member association for CPAs. CPAs in this organization may hold special credentials in such areas as financial planning and business appraisal.
National Association of Enrolled Agents at http://taxexperts.naea.org/. This is a professional society for enrolled agents.
National Association of Tax Professionals at www.natptax.com/AboutNATP/Pages/Find-a-Tax-Preparer.aspx. This is a nonprofit organization representing tax preparers who engage in federal tax return preparation.
National Conference of CPA Practitioners at http://go.nccpap.org/info/cpareferral. This is another organization representing tax preparers.
National Society of Accountants at http://connect.nsacct.org/network/members. This organization represents tax professionals providing accounting, tax, auditing, and other services.
IRS
The IRS has a directory of preparers with PTINs at https://irs.treasury.gov/rpo/rpo.jsf. Preparers listed here include attorneys, CPAs, enrolled agents, and annual filing season program participants (those who have completed certain continuing education and other requirements set by the IRS). The directory does not include preparers who have PTINs but no other credentials. You can search the directory by the credentials you are seeking, by zip code, or by the distance from you.
The IRS has another directory for professional employer organizations (PEOs) that obtain certification under a new IRS program. Applications for certification began to be accepted on July 1, 2016. The directory for certified PEOs will be functional for the 2017 tax season. See the Supplement for a link to the directory.
Storefront and Online Preparers
Some preparers operate storefront businesses where customers can simply walk in and get their returns prepared. There are several reputable storefronts, such as H&R Block and Liberty Tax. There are numerous local storefronts that are one-person businesses, and many of these operate only during the tax-filing season.
In addition to storefront preparers, there are also online preparers such as 1-800Accountant (https://1800accountant.com) and efile TaxPro (www.efile.com for W-2s and information returns) offering their services to small businesses.
The credentials of any such preparer assigned to you can run the gamut of tax professionals. Most preparers in storefronts are enrolled agents, but some may be preparers with PTINs but no credentials. There may be some CPAs, often acting as supervisors or to whom more complex tax returns are assigned. Be sure to ask about credentials so you know who you're dealing with.
Tips for Selecting a Tax Professional
Decide what you need done by a tax professional and select the type who has the credentials that meet your needs. Take into account the cost of the services you'll obtain. Cost varies with the preparer's expertise and location. Learn whether you'll be charged a flat fee for the job (e.g., a fixed amount for the preparation of a tax return) or an hourly rate.
When considering a tax professional, steer clear of anyone with shady practices as listed below. You may save money up front but it can expose to you IRS scrutiny later on. When the IRS identifies unscrupulous preparers, the IRS often examines these preparers’ clients. Here are some tipoffs that a preparer should be avoided:
Basing his/her fee on a percentage of your tax refund. Such action is a violation of the IRS's code of ethics for preparers.
Guaranteeing you a refund without regard to your actual situation.
Offering to cash your refund check. This practice is prohibited and preparers can be subject to IRS penalties for doing so.
Willing to prepare your tax return without seeing any records or documentation.