Go for the Real Tax Thing, Use an Enrolled Agent

The whole tax return landscape is changing. Big things are happening to protect the average taxpayer from shoddy tax return preparers.

Until 2011, there was no regulation of unlicensed tax return preparers. Any-body could wake up in the morning and decide to do taxes for money. At the same time, the government subjected Certified Public Accountants, Attorneys, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and Appraisers to strict regulation via Circular 230. Licensed tax preparers could face severe penalties and lose their licenses for if convicted of certain kinds of crimes, if they did not file their taxes, if they gave marginal tax returns or gave bad advice. That has changed. Now the IRS will regulate all paid tax return preparers.

In 2010 the IRS began the process by requiring everyone who wanted to prepare tax returns in 2011 to get or renew their Preparer Tax Identification Number (PTIN). The government required even licensed professionals such as Certified Public Accountants, Attorneys, and Enrolled Agents to renew their PTIN. Licensed professionals will not have to prove their ability to prepare taxes again-they have already demonstrated competency. Furthermore, these licensed professionals have always been subject to continuing professional education requirements, not to mention staying current on their taxes & clear of the law.

Unlicensed tax return preparers must pass a test to prove their competency to prepare basic Form 1040s. If they pass the competency exam, the IRS will allow them to prepare more complex business returns, even though the IRS is not requiring them to prove competency there. No doubt, a few currently unlicensed preparers, who have renewed their PTINs, will not be able to demonstrate competency within the grace period, but still prepare taxes.

The competency exam is now available, therefore the IRS stopped issuing PTINs; the tax preparer wannabe must past the test before getting the PTIN. Once an unlicensed tax return preparer passes the test they will be able to use the designation Registered Tax Return Preparer (RTRP), and the IRS will allow them to prepare taxes.

Although, the competency test is now available, anyone who registered their PTIN before the test was available had three years to pass that exam. That means for the next couple of years, an individual taxpayer can still wind up pay-ing for slipshod tax return preparation and advice from an unscrupulous possibly felonious tax cheat. Yikes.

Enrolled Agents (EAs) are federally licensed tax practitioners who have passed stringent exams in the area of taxation. The federal government requires EAs to be knowledgeable in all areas of taxation: Personal taxes, business taxes, corporate taxes, payroll taxes, estate taxes, etc. as well as representing the taxpayer before the Internal Revenue Service (IRS).

As Circular 230 practitioners, the IRS has also tested EAs on their ethical responsibilities and obligations per that document and EAs are familiar with the consequences of breaking the rules. In addition to passing the rigor-ous Special Enrollment Exam, the IRS requires EAs to take 24 hours per year of Continuing Professional Education (CPE) including 2 hours of ethics every year in order to retain their license. If an EA is a member of the National Association of Enrolled Agent, they are required to take 30 hours of CPE per year. Remember EAs work for you, not the IRS.

EAs have limited privilege in representing the taxpayer before the IRS, when dis-cussing civil (not criminal) matters that do not constitute tax return preparation. In short EAs are taxation specialists, who work to stay current in the area of taxation, who can prepare any kind of tax form, and can represent the taxpayer at all levels of the IRS, whether they prepared a given tax return or not.

In contrast, when the Registered Tax Return Preparer (RTRP) passes their test, which will be a far less difficult exam than the Special Enrollment Exam, and gains their designation, the IRS will only require them to take 15 hours of CPE per year. RTRPs will have no privilege with their clients with respect to matters before the IRS because tax return preparation is not a covered privilege under Circular 230.

If you pay someone to do your taxes, make sure they sign on the tax preparer line and give a PTIN. Moreover, if you need help with your taxes or tax advice, as long as it is not criminal matter, you really should go to the tax specialists; hire an Enrolled Agent. For a criminal matter, hire a lawyer first; let your attorney hire the Enrolled Agent.

Finally when there are RTRPs out there, do not expect EAs to add the designation to their alphabet soup, it is kind of like saying Jane Doe PhD, High School Graduate. Who would do that?

As always, small business services and taxation are our business. If you need help with taxes, or other services, Please give us a call. We would love to engage you as a client.

The usual disclaimers: Although the author has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore GetMeOutOfThisShoebox.com, Art & Business Consulting LLC, its employees, members and other associates, take no responsibility for any action taken or results based on the information supplied here in. The content of this article generally applies to business and individual taxation in the United States of America. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, market-ing or recommending to another party any plan or arrangement address herein. The author currently does not have a certified public accountant, human resource specialist, certified financial planner or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. The author, its employees, members and other associates are not engaged to practice law; you always should discuss legal matters with your attorney before talking to anyone.