Working With a Tax Professional

Especially if you are self-employed or own a business, it's wise to consider working with a tax professional. There are a variety of professional "breeds," however, all of whom can prepare tax returns and some of whom can provide year-round tax planning advice. Let's survey the field.

Enrolled Agents

Enrolled agents, also known as EAs, have passed a comprehensive IRS exam covering individual and business returns and tax law. They are bound to ethical standards and required to complete 72 hours of continuing education every three years. EAs are permitted to practice before the IRS, so they can represent a client in any tax matter outside of court.

Enrolled agents are a good fit with all kinds of taxpayers—individuals as well as businesses. Aside from mere tax return preparation, EAs are specifically helpful in dealing with tax problems, such as back taxes due, compromise offers to the IRS, and tax audits. There is no professional degree requirement for EAs, but many do have accounting degrees, MBAs, and/or other professional licenses.

Enrolled agents are governed by the IRS's Office of Professional Responsibility. You may wish to check whether your EA is a member of the National Association of Enrolled Agents and/or similar professional society in your state.

Certified Public Accountants

Certified Public Accountants (CPAs) have passed a rigorous four-part uniform exam covering business law and auditing, as well as all forms of accounting. They are governed by the American Institute of CPAs, as well as their state's organization, and must adhere to ethical and continuing educational requirements. CPAs are permitted to practice before the IRS, so they can represent a client in any tax matter outside of court. CPAs are a good choice for complex tax return preparation and planning issues.

Tax Attorneys

Tax attorneys have passed their state bar exams and are governed by their own state bar association. They must adhere to ethical and continuing educational requirements provided by their states. Attorneys have unlimited practice rights before the IRS and can represent their clients in court, if necessary.

You'll need a tax attorney if you have potential criminal issues or for estate planning and related tax issues. A tax attorney is also a good choice for complex business entity planning and structuring. Because of their relatively high hourly fees, tax attorneys are usually not the best choice for routine personal tax preparation, unless that service is included as part of a package of other services.

Registered Tax Return Professionals

Registered tax return professional, or RTRP, is a new designation recently created by the IRS. RTRPs will have to pass a basic IRS test establishing minimal competency in preparing individual income tax returns (i.e., only Form 1040) before Dec. 31, 2013. They will be required to adhere to ethical standards and must complete 15 hours of continuing education each year. Several hundred thousand tax professionals around the country are operating with provisional permission prior to taking the test and receiving their designation.

Whomever you choose as a tax pro, taxpayers should remember they are legally responsible for what's on their tax return, even if it is prepared by someone else. You should use only preparers who sign the returns they prepare and enter their preparer tax identification numbers (PTINs). New regulations now require all paid tax return preparers—including EAs, CPAs and attorneys—to register with the IRS and obtain a PTIN.