Taxes are complicated. There are hundreds of code notices and dozens of forms, and the more self-sufficient you are, the more complicated it gets. Do you own property? You may have property taxes. Do you invest? Then you will have to manage taxes on realized gains. Are you employed? Then most of your taxes are paid via withholding. But if you have a side gig, you may need to report and pay the taxes on that additional income through quarterly estimated payments. Unless, of course, you owe less than $1,000 in taxes on your additional income. And depending on your income, your estimated tax payments will need to equal 100% or 110% of the tax liability on last year’s return. Have we mentioned adjusted gross incomes yet?
It can all become a little too much – which is why it is understandable that the IRS encourages taxpayers to seek assistance through tax professionals, including attorneys, certified public accountants, and enrolled agents. These tax representatives become a boon in an hour of need, helping you navigate the IRS’s complex rules and US tax law, finding the best way for you to resolve problems with your tax account, receive tax refunds you may not have had on your radar, and reduce your tax liability.
Different Types of Tax Representatives
When do the services of a CPA come in handy over those of an EA? When do you need representation through a tax attorney? What are the differences between each of these tax representatives? Let’s go over the basics together.
What Is a Certified Public Accountant (CPA)?
A certified public accountant is a licensed accounting professional. The CPA license can only be awarded to accountants via a state’s respective Board of Accountancy. The American Institute of Certified Public Accountants (AICPA) acts as a national organization helping fledgling accountants pursue a CPA certification, as well as coordinating between CPAs to facilitate national and local events, and provide additional resources, discounts, and representation.
Like other certifications, the CPA license sets a professional standard for accountants. There are requirements to becoming a CPA, other than passing the CPA exam. These include:
- A bachelor’s degree or higher in finance, accounting, or business administration.
- At least two or more years of public accounting experience.
- At least 150 hours of additional education.
Someone who is a certified public accountant has enough experience to be a generalist in personal finance, and financial law. Furthermore, retaining a CPA license requires continued annual education. However, that does not mean they are experts in tax law, necessarily. CPAs are commonly hired for income tax preparation, but they can also seek careers in managerial accounting, business bookkeeping, company auditing, and IT.
That being said, CPAs can also specialize in taxes, and even receive non-attorney admission into the US Tax Court, to represent clients in cases of tax litigation. To do so, they must pass an additional written test every two years and prove that they are proficient in the subjects of the federal tax code, rules of evidence, the rules of the tax court, and legal ethics.
What Is an Enrolled Agent (EA)?
An enrolled agent is any tax professional authorized by the government to help taxpayers in coordinating with the IRS. Enrolled agents can be certified public accountants, and/or attorneys. They can also be someone with no college or university experience, but experience as an IRS employee. To become an enrolled agent, a person must either have five years of experience as an outstanding IRS employee or pass a series of exams.
Furthermore, enrolled agents must receive 72 hours of continued education every three years. The enrolled agent license is provided by the IRS, but enrolled agents are not IRS employees (although some of them are ex-employees). Enrolled agents are not state-specific but have the ability to help taxpayers with federal tax issues throughout the country.
Enrolled agents who furthermore seek membership with the National Association of Enrolled Agents (NAEA) are required to receive an additional 30 hours of training per year, or 90 hours every three years, as well as abide by a code of ethics and rules of conduct. While CPAs help clients with tax problems, CPAs who are enrolled agents have further specialized in tax law and tax examination.
What Is a Tax Attorney?
A tax attorney is any lawyer specializing in the interpretation of tax law. While tax attorneys can advise clients on all matters of tax issues, their unique niche is tax litigation. Tax attorneys act as personal representatives in cases against state or federal tax agencies through the US Tax Court. Tax attorneys also provide professional tax examination services and in-depth tax information.
Their expertise may range from minimizing estate taxes via living trusts and other elements of careful estate planning to help businesses and corporations take advantage of the tax code to reduce their annual tax liabilities. Becoming a tax attorney is typically a much more arduous process than becoming an enrolled agent or a certified public accountant. As such, tax attorneys usually charge more.
There are cases when you may want the services of a tax attorney over those of an enrolled agent or certified public accountant. For example, a large tax firm may have greater access to resources for legal research in a complex tax case. A tax attorney with years of family law experience and specialization in estate planning may be better able to advise you on estate taxes and minimizing the costs of inheritance than a CPA.
EA vs CPA
While people are generally clear on the differences between a lawyer and an accountant, there is much debate around whether to hire an enrolled agent or a CPA for tax issues. The answer to who to work with depends on what you really need. A CPA will have more knowledge of general finance and accounting information, even if they specialize in tax law. Unless they specialize in tax liability resolutions, CPAs are generally a greater help in tax planning and liability avoidance.
EAs, on the other hand, may have more experience in dealing with the IRS on outstanding liabilities. because EAs often specialize in liability resolution, they may be able to better help you sort through your options for engaging the IRS and minimizing your costs. If you need help optimizing your tax returns and identifying potential deductions, consider working with a CPA. If you need help with an upcoming audit or have questions regarding the IRS collection process, consider an EA.
Can You Represent Yourself?
When dealing with the IRS, you can simply represent yourself. However, if things escalate to litigation, you are better off seeking professional help. You can represent yourself in the US Tax Court, but it would be an unnecessary risk. While you can always represent yourself, tax professionals such as CPAs, EAs, and tax attorneys dedicate their professional lives to knowing everything they can about federal and local tax law and the way the IRS works. Relying on their services can end up helping you save a small fortune in fees, penalties, and taxes.