Anyone who registers for an IRS Preparer Tax Identification Number (usually abbreviated as PTIN) is authorized to prepare taxes for compensation. The requirements are minimal: In order to obtain a PTIN, the applicant must verify with the IRS that they are in compliance with their own taxes and pay a small yearly fee ($19.74 in 2024).
While the IRS encourages non-credentialed tax preparers to increase their knowledge through continuing education, doing so is optional.
A PTIN authorizes the holder to do one specific thing: prepare taxes for compensation. Without additional credentials, the PTIN-holder has no authority to represent clients before the IRS. If a tax-preparer has no additional credentials, should the taxes they’ve prepared require additional scrutiny from the IRS, the taxpayer will have to represent themself or (most likely) seek more qualified professional help.
What Are Representation Rights, and When Do You Need Them?
Both Enrolled Agents and Certified Public Accountants (CPAs) have unlimited representation rights. This means that in addition to preparing taxes, they are allowed to represent clients before the IRS on any matters, including audits, payment and collection issues, and appeals. So if a client’s taxes have been audited, the Enrolled Agent or the CPA can communicate with the IRS on the client’s behalf.
The know-how of a qualified professional can prevent problems from arising, resolve problems that do arise without generating additional errors, and smooth a stressful experience through effective communication both with the IRS and their client.
Enrolled Agents Are Tax Specialists
An Enrolled Agent is a tax professional licensed by the IRS. They can assist on a wide variety of tax-related concerns, starting with tax preparation but extending to advanced planning to develop an overall tax strategy, optimizing credits and deductions, maximizing tax refunds, and ensuring that their clients remain in compliance with local and federal tax codes.
Enrolled Agents (EAs) must pass a comprehensive three-part exam administered by the IRS, covering federal tax planning, individual and business tax return preparation, and representation. They must also complete 72 hours of continuing professional education (CPE) every three years.
CPAs Are Accounting Professionals
Just like an Enrolled Agent, a CPA is qualified to provide tax services and to represent clients before the IRS. CPAs must understand local and federal tax laws, and can advise their clients on tax strategy.
However, a CPA has a a year-round job that doesn’t end with the tax season. CPAs are accounting professionals trained to provide services as straightforward as bookkeeping and as complex as business analysis. A CPA can formulate budgets, offer advice on investment strategy, weigh the merits of mergers or acquisitions, or offer attestation services.
With so many options, CPAs often specialize. Their work experience might suit them to a specific kind of client—on individuals, small businesses, large corporations, or even non-profits—or a specific industry. Alternatively, a CPA might advance their competency in a specific type of accounting, focusing on tax issues, forensic accounting, attestation, advisory services, or a wide range of other possibilities.
The preparation required of CPAs reflects their broader range of expertise. CPAs must obtain a bachelor’s degree with a focus on accounting, pass the CPA exam, meet thresholds for experience and character, abide by a standard of ethics and also commit to continuing education every year.
The Uniform CPA Examination is a 16-hour, computer-based test that covers subjects including accounting, auditing, regulation, tax compliance and planning, and business analysis.
A CPA is licensed by their state’s Board of Accountancy. Every state has a Board of Accountancy, which issues CPA licenses, sets minimum educational requirements, administers exams, and establishes other state-specific requirements. Many states have reciprocity agreements that allow a CPA with a single state’s license to practice more broadly—a map of CPE reciprocity within the US is available here.
The American Institute of Certified Public Accountants (AICPA) is the national professional organization for CPAs. Just like the IRS sets the standards for Enrolled Agents, the Security and Exchange Commission (SEC) is ultimately responsible for setting the standards and principles that apply to accountants. Since 1973, the SEC has made the Financial Accounting Standards Board (FASB), a subsidiary of the non-profit Financial Accounting Foundation, responsible for developing the the General Accepted Accounting Practices (GAAP) which all CPAs are expected to follow.
Do I Need a CPA or a Tax Preparer?
It depends on the level of complexity of your business. Business owners with simple tax filing needs can rely on a tax preparer. However, for tax planning and more elaborate tax situations, a specialized CPA will be able to offer higher level advice, including financial planning that goes beyond calculating a businesses’ tax liability.
John Scott, CPA and Partner in Tax at Anders, explains the difference in this way, “A tax preparer is historical in nature. They fill out tax forms based on what happened. A CPA is a trusted adviser who not only does the historical case but also advises you about your businesses’ future.”
