Demystifying the Different Types of Tax Professionals

Taxes – the inescapable undercurrent that shows up just about everywhere in our finances. We love to complain about taxes, especially around April.

In the U.S., our tax system is insanely complicated. Luckily, we have trained professionals who can help us prepare tax returns and consult with us to ensure we are correctly filing and paying our taxes while taking advantage of legal opportunities to save money on taxes.

There is more than one type of tax professional and there are similarities and differences between them. Often, it can be difficult to understand what different credentials mean.

Let’s walk through the different types of tax professionals, their credentials, and what they do so you can be better informed as you seek help with taxes.

The Four Types of Tax Preparers

There are four principal types of tax professionals that can help you prepare your tax return. They are:

• Certified Public Accountant (CPA)
• Enrolled Agent (EA)
• Tax Attorney
• Non-credentialed Tax Preparer (including AFSP participants)

Each one has a different scope of practice which may be relevant depending on the situation.

Certified Public Accountant (CPA)

A CPA is what most people think of when it comes to tax professionals. The CPA designation is a well-recognized credential and is often used generically, as in “you should ask your CPA about that” even though the intention is to ask your tax professional in general (who may or may not be a CPA).

Certified Public Accountants (CPAs) are professionals who are licensed to provide accounting services to individuals and businesses. CPAs can provide a wide range of accounting services, including tax preparation, tax planning, financial statement preparation, audit and assurance services, and consulting services.

Here are some specific tasks that a CPA might perform:

• Financial statement preparation: CPAs are often responsible for preparing financial statements, such as balance sheets, income statements, and cash flow statements. These statements help business owners and managers understand the financial health of their company, and they may be required by lenders or investors.
• Tax preparation and planning: CPAs can prepare tax returns for individuals and businesses, and they can also help clients plan their tax strategies to minimize their tax liability. They can stay up-to-date on tax laws and regulations to ensure that their clients are in compliance and taking advantage of all available tax deductions.
• Audit and assurance services: CPAs can perform audits, reviews, and other assurance services to help clients maintain accurate financial records and ensure compliance with regulations. Audits are typically required for public companies, while reviews and other assurance services may be appropriate for smaller businesses.
• Consulting services: CPAs may provide consulting services to clients on a variety of financial matters, such as financial planning, budgeting, and business strategy. They can also provide guidance on financial systems and software, internal controls, and risk management.
• Business valuation: CPAs can provide expertise in business valuation to help clients determine the value of their business, whether for sale or estate planning purposes.

Overall, the role of a CPA is to provide expert financial advice and guidance to help clients make informed decisions that impact their personal and business finances. They are knowledgeable about accounting principles, tax laws, and financial regulations, and they can provide valuable insights to help clients meet their financial goals.

As mentioned before, many people think all tax professionals are CPAs and often use the term as a generic catchall.

As of August 24, 2022, there are 665,612 actively licensed CPAs (source: National Association of State Boards of Accountancy, Inc.).

Enrolled Agent (EA)

An Enrolled Agent (EA) is a federally licensed tax practitioner who is authorized by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service (IRS). EAs are tax professionals who have earned their credentials by passing a rigorous exam or through qualifying experience with the IRS.

Here are some specific tasks that an Enrolled Agent might perform:

• Tax preparation: EAs can prepare tax returns for individuals, businesses, trusts, and other entities. They are trained to identify deductions and credits that can minimize a taxpayer’s tax liability while ensuring that their clients are in compliance with tax laws and regulations.
• Tax planning: EAs can provide tax planning advice to help clients minimize their tax liability for future years. They can analyze a client’s financial situation and recommend strategies to reduce tax exposure, such as maximizing deductions, contributing to retirement accounts, or implementing other tax-efficient investment strategies.
• Representation before the IRS: EAs can represent taxpayers before the IRS in audits, collections, and appeals. They can communicate with the IRS on behalf of their clients and help resolve any issues that may arise during an audit or collection process.
• Tax compliance: EAs can help clients comply with tax laws and regulations by ensuring that all necessary tax returns are filed on time and that tax payments are made in a timely manner. They can also help clients resolve any tax issues that may arise, such as disputes with the IRS or the need to file an amended tax return.
• Tax education: EAs are required to complete continuing education courses to maintain their license, which ensures that they stay up-to-date with changes in tax laws and regulations. They can also provide educational resources to clients to help them better understand the tax code and their tax obligations.

Overall, the role of an Enrolled Agent is to provide expert tax advice and guidance to help clients navigate the complex and ever-changing world of tax laws and regulations. They are knowledgeable about all aspects of taxation and can provide valuable insights to help clients meet their tax-related goals.

According to the National Association of Enrolled Agents, there are approximately 53,700 practicing enrolled agents as of 2023.

So what’s the difference between a CPA and an EA?

The main difference between a Certified Public Accountant (CPA) and an Enrolled Agent (EA) is the scope of their professional responsibilities. Both professionals are licensed by the government and have demonstrated a high level of expertise in tax laws and regulations, but their training, licensing requirements, and areas of expertise differ.

Here are some key differences between CPAs and EAs:

• Licensing and certification: CPAs are licensed by state boards of accountancy, and they must meet education and experience requirements, pass a rigorous exam, and maintain continuing education requirements to keep their license. EAs, on the other hand, are licensed by the federal government and must pass a comprehensive exam or have qualifying experience with the IRS.
• Areas of expertise: While both CPAs and EAs are knowledgeable about tax laws and regulations, CPAs typically have a broader range of expertise in areas such as accounting, auditing, and financial reporting. EAs, on the other hand, typically specialize in tax matters, including tax preparation, tax planning, and representation before the IRS.
• Representation before the IRS: Both CPAs and EAs are authorized to represent clients before the IRS, but because EAs have a more specialized focus on tax matters, EAs are authorized to represent clients in all matters before the IRS, including audits, collections, and appeals, while CPAs may have a more limited scope of representation.
• Continuing education requirements: Both CPAs and EAs are required to complete continuing education requirements to maintain their license or certification, but the requirements may differ. CPAs are typically required to complete a certain number of hours of continuing education each year, which may include coursework in accounting, auditing, and other areas. EAs are required to complete a certain number of hours of continuing education each year that focuses specifically on tax matters.

So how does this apply to your situation?

Overall, both CPAs and EAs are highly qualified professionals who can provide valuable tax advice and guidance to clients as well as prepare tax returns. The choice between a CPA and an EA depends on the specific needs of the client and the scope of the services required but in general, both CPAs and EAs are qualified to prepare tax returns for the vast majority of people in the U.S.

Tax Attorney

A tax attorney is a lawyer who specializes in tax law. Tax attorneys are trained to understand the complex and ever-changing U.S. tax code, and they can provide a wide range of services to clients, including individuals, businesses, and nonprofit organizations. Here are some specific tasks that a tax attorney might perform:

• Tax planning: Tax attorneys can provide tax planning advice to help clients minimize their tax liability. They can analyze a client’s financial situation and recommend strategies to reduce tax exposure, such as maximizing deductions, contributing to retirement accounts, or implementing other tax-efficient investment strategies.
• Tax preparation: Tax attorneys can prepare tax returns for individuals, businesses, trusts, and other entities. They are trained to identify deductions and credits that can minimize a taxpayer’s tax liability while ensuring that their clients are in compliance with tax laws and regulations.
• Representation before the IRS: Tax attorneys can represent clients before the IRS in audits, collections, and appeals. They can communicate with the IRS on behalf of their clients and help resolve any issues that may arise during an audit or collection process.
• Tax compliance: Tax attorneys can help clients comply with tax laws and regulations by ensuring that all necessary tax returns are filed on time and that tax payments are made in a timely manner. They can also help clients resolve any tax issues that may arise, such as disputes with the IRS or the need to file an amended tax return.
• Business consulting: Tax attorneys can provide guidance on tax-related business matters, such as structuring business entities, mergers and acquisitions, and employee benefits. They can also provide legal advice on other business matters, such as contracts, liability, and intellectual property.
• Estate planning: Tax attorneys can help clients plan their estate to minimize estate tax liability and ensure that their assets are distributed according to their wishes.

So how is a tax attorney different from a CPA or EA?

Here are some key differences between tax attorneys, CPAs, and EAs:

• Education and licensing: Tax attorneys are licensed lawyers who have earned a law degree and passed a state bar exam. CPAs are licensed by state boards of accountancy, and they must meet education and experience requirements, pass a rigorous exam, and maintain continuing education requirements to keep their license. EAs are licensed by the federal government and must pass a comprehensive exam or have qualifying experience with the IRS.
• Areas of expertise: Tax attorneys have a specialized focus on tax law and are trained to provide legal advice on a wide range of tax-related matters, including tax planning, tax preparation, representation before the IRS, and business consulting. CPAs have a broad range of expertise in areas such as accounting, auditing, and financial reporting, and may also provide tax planning and preparation services. EAs specialize in tax matters, including tax preparation, tax planning, and representation before the IRS.
• Representation before the IRS: Tax attorneys and EAs are authorized to represent clients before the IRS in audits, collections, and appeals. CPAs may also be authorized to represent clients before the IRS in certain circumstances, depending on the scope of their license.
• Legal expertise: Tax attorneys have specialized training in the legal aspects of tax law and can provide legal representation and advice. They are trained to understand the nuances of tax law and can help clients navigate complex legal issues that may arise. CPAs and EAs are not licensed to practice law and cannot provide legal representation or advice.
• Overall, the choice between a tax attorney, CPA, or EA depends on the specific needs of the client and the scope of the services required. Tax attorneys are specialized legal professionals who can provide valuable legal advice and representation on tax-related matters, while CPAs and EAs can provide expertise in tax planning, preparation, and representation before the IRS.

Overall, the role of a tax attorney is to provide expert tax advice and guidance to help clients navigate the complex and ever-changing world of tax laws and regulations. Tax attorneys are highly qualified professionals who can provide valuable insights and legal representation to help clients meet their tax-related goals.

While tax attorneys are valued professionals, it is not as common for the average person to require the services of a tax attorney for general tax preparation.

It is difficult to determine the exact number of tax attorneys in the United States, as there is no centralized database that tracks this information. However, according to the American Bar Association, as of 2021, there are over 1.3 million licensed attorneys in the United States. Of these, it is estimated that approximately 5% practice tax law or have a significant focus on tax-related matters.

Based on these estimates, there are likely tens of thousands of tax attorneys in the United States. However, the exact number may vary depending on factors such as geographic location, market demand, and changes in the legal profession. It is also worth noting that the number of tax attorneys may be significantly smaller than the number of other tax professionals, such as Certified Public Accountants (CPAs) or Enrolled Agents (EAs).

Non-credentialed Tax Preparer (including AFSP)

A Non-credentialed Tax Preparer is an individual who prepares tax returns for clients but is not licensed or regulated by the government. Non-credentialed tax preparers include a wide range of professionals, such as unenrolled preparers, commercial tax preparation services, and online tax preparation software.

Here are some specific tasks that a non-credentialed tax preparer might perform:

• Tax preparation: Non-credentialed tax preparers can prepare tax returns for individuals, businesses, trusts, and other entities. They are trained to identify deductions and credits that can minimize a taxpayer’s tax liability while ensuring that their clients are in compliance with tax laws and regulations.
• Basic tax advice: Non-credentialed tax preparers may provide basic tax advice to clients, such as information about tax deductions or tax credits that may be available to them. However, they cannot provide legal or professional advice on complex tax issues.
• Electronic filing: Non-credentialed tax preparers can e-file tax returns for clients, which can provide a faster and more efficient way to submit tax returns to the IRS.
• Client communication: Non-credentialed tax preparers may communicate with clients to gather the necessary tax documents, answer basic tax-related questions, and provide updates on the status of their tax return.

Many people aren’t aware of this but anyone can become a tax preparer in the United States. There are no specific educational or experience requirements for becoming a tax preparer, and individuals can enter the profession without formal training. However, tax preparers are required to comply with certain federal and state tax laws and regulations, and there are certain rules and requirements that tax preparers must follow.

For example, tax preparers must have a preparer tax identification number (PTIN), which is issued by the Internal Revenue Service (IRS). The PTIN is used to identify tax preparers and to ensure that they are authorized to prepare tax returns for clients.

In addition, some states have specific requirements for tax preparers, such as licensing or registration requirements. These requirements can vary widely by state, so it is important for individuals interested in becoming a tax preparer to check with their state's tax agency to determine what the specific requirements are.

It's important to note that non-credentialed tax preparers are not regulated by the government and may have varying levels of expertise or training. They are not required to meet any specific educational or experience requirements, pass an exam, or complete continuing education requirements. As a result, the quality of services provided by non-credentialed tax preparers can vary widely, and there can be a greater risk of errors, omissions, or fraud.

Some non-credentialed tax preparers participate in the Annual Filing Season Program.

The Annual Filing Season Program (AFSP) is a voluntary program established by the Internal Revenue Service (IRS) in 2014 to encourage tax return preparers to stay up-to-date with tax law changes and ethical obligations. The program requires participants to complete a certain number of continuing education credits each year and to pass a test covering tax law and ethics.

The AFSP is intended for tax return preparers who are not already enrolled agents, certified public accountants (CPAs), or attorneys. By participating in the program, preparers can distinguish themselves from other tax preparers who do not participate and demonstrate to their clients that they are committed to staying current on tax law changes and best practices.

Starting January 1, 2016, there were modifications made to the rights of return preparers to represent their clients. The tax professionals with unrestricted representation rights are attorneys, CPAs, and enrolled agents, which allows them to represent their clients on all matters such as audits, payment/collection problems, and appeals.

However, return preparers who participate in the Annual Filing Season Program have limited representation rights. This means they can only represent their clients on issues related to the returns they prepared and signed, and only in front of certain IRS employees, such as revenue agents, customer service representatives, and similar staff members, including the Taxpayer Advocate Service.

What Type of Tax Professional Should You Work With?

There is no right or wrong when it comes to choosing a tax professional. In general, most individuals and families with simple needs are well served by working with a CPA or an EA. For all practical purposes, the overlap between these two types of professionals is sufficient enough that they are both qualified and capable of tax preparation for the average person.

This is often supported by the tendency for people to say “CPA” when referring to their tax pro when in reality they don’t necessarily know what that person’s credentials are. EAs are often referred to as CPAs simply because the term has become somewhat generic.

For those with very simple needs, a non-credentialed tax preparer may even be a great fit. There are many financial advisors, bookkeepers, and other professionals who are non-credentialed tax preparers and offer this service as an add-on to their primary business.

Others provide tax preparation services as a primary business but don’t have a CPA or an EA designation.

In general, your needs and comfort level should inform the tax pro you work with. If you have a simple situation (no businesses or rental property, etc.) you may feel comfortable working with a non-credentialed tax preparer. This can be even more appropriate if the tax preparer already works with you in an existing capacity (such as your financial advisor).

However, in situations with some complexity, it can make more sense to work with a CPA or EA. This can include situations like:

• Owning a business
• Rental properties
• Equity compensation
• Large number of investment accounts
• Multiple income sources
• International income or assets
• Significant life changes (marriage, divorce, adoption, having children)

As with any professional, you’ll want to go beyond simply looking at their credentials or qualifications. It’s also important to learn more about their experience in working with situations like yours.

You’ll also want to make sure that they are responsive and work well with you on a personal level. Making sure your taxes are handled properly has a big impact on your financial situation.

Ultimately, your tax pro can help you stay current on your taxes, find opportunities for savings, and ideally be a long-standing member of your financial team.