What is an EA: Qualifications and Role
Enrolled Agents (EAs) are tax professionals who have a specialty in representing taxpayers in front of the Internal Revenue Service. Unlike CPAs and Tax Attorneys, EAs don’t have to worry about their license amongst the other professions if they chose to specifically practice tax. An enrolled agent’s job is to represent taxpayers before the IRS. If a case is in Collections or Appeals, an EA is called a "representative," and they’re a "defendant" in the Tax Court if they’re actually litigating a case as a "power of attorney" for a taxpayer. Like CPAs and Tax Attorneys, enrolled agents have unlimited representation rights before the IRS, and enrolled agents also go through background checks and exams in order to earn and maintain their licenses.
The requirements to become an EA are to:
Enrolled Agents are usually specialists who deal primarily with taxes, penalties, defaults, and audits. There are EAs who specialize just in Subchapters K and S of the Internal Revenue Code , or just with Deceptive Trade Practices and Fraud as related to the Internal Revenue Code. There are EA specialists in Non-Profit and Charitable Tax-Exempt matters. There are EAs skilled in Estate and Gift Tax, and many EAs specialize in Business Strategy and Business Tax topics.
In addition to the above requirements to become an EA, EAs also maintain their license through continuing education requirements. EAs must complete 72 hours of education every 3 years, and 16 hours of that education must be from the IRS each calendar year.
EAs may represent taxpayers in all administrative matters before the IRS except for Tax Court, and EAs may represent taxpayers in Tax Court along with CPA professionals and Tax Attorneys. EAs will regularly file claims such as offer in compromise (OIC), installment agreement, and innocent spouse. EAs will frequently handle audits, levies, liens, payments, and seizure matters. EAs may also represent taxpayers in Contract Dispute and Default matters with the IRS.
CPA Basics: Credentials and Offerings
In addition to Enrolled Agents (EAs), there are two other types of tax professionals who are generally much more well-known to the general public. These are Certified Public Accountants (CPAs) and Tax Attorneys.
The baseline requirement to become a CPA is to have a bachelor’s degree with a major in accounting, and 150 credit hours of education including the typical areas of business law, English, and data processing instruction. Since this would require an additional year of higher education after receiving a bachelor’s degree, this requirement is often completed by obtaining a Master’s degree in accountancy.
This is of course in addition to passing the Uniform CPA Examination, which is composed of 14 hours of multiple-choice and task-based simulations taken over the course of two days. Finally, CPAs must choose to pursue either a specialization in Tax or Audit, as they are not allowed to provide both services at the same time in most states.
Picking an EA or CPA over an attorney will always be the better option for a simple case. However, be wary of confusion when dealing with CPAs, particularly those who do not limit themselves to only tax advice. When dealing with a CPA, a logical question to ask them is: "What’s your favorite kind of tax return to prepare?" If they actually have one, then they likely specialize, at least somewhat, in tax preparation, and they are likely to be a decent option for most people.
Common Tax Attorneys: Specialized Expertise
Tax attorneys are members of the bar who have decided to focus their practice on tax law. As a result, they are generally very knowledgeable about the law of taxes, and are used primarily to represent individuals and businesses in tax matters with the IRS when there is a legal dispute, or if a legal analysis of a tax issue is required. While they may not be as familiar with the accounting aspects of taxes as CPAs, tax attorneys go to law school and are typically highly trained in the legal theories behind tax compliance. If a lawyer believes that there is a question of law that requires an analysis, they should be able to draft a superb legal memorandum explaining the issue. The application of tax law to factual circumstances forms the basis for most tax compliance and disputes with the IRS, so accountants are generally much better than lawyers at analyzing transactions and figuring out the tax consequences (those are basic accounting concepts). When it comes to interpretation of the law, a tax attorney may have the advantage, but not always, as there are many areas where tax professionals from different disciplines can be just as good at figuring out what the law says.
The primary area of use for a tax attorney is in tax disputes with the IRS, when there is a need to perfect a legal argument to support a position, and a high degree of legal knowledge is required. In addition, they can provide legal advice before a problem arises, to assist in structuring transactions to achieve a desired legal and tax result. The key issues which attorneys are most commonly contacted regarding include Innocent Spouse Relief Claims, IRS Audit Appeals, Employee Retention Credit Refunds, and RESOLVE Offer in Compromise settlements. Tax attorneys are most useful when the IRS has made a legal ruling on a matter which a taxpayer does not agree with. The most common scenarios for tax attorneys are those involving a job loss or divorce where the taxpayer needs innocent spouse relief, or where the IRS has denied an appeal of a case and is about to litigate in court. They can also be helpful in bankruptcy law when dealing with tax debts.
It’s important to recognize that each of these tax professionals does something a bit different, and you need to have the right one for your particular situation otherwise you could be wasting your time and money. That said, each can provide an important role, and handle slightly different problems. EA’s are the front line for dealing with the IRS on audit matters, financial settlement, and tax infection. CPAs are the record keepers who know how to put together the federal tax return, as well as both entrepreneurs and "employee types." Lawyers handle more complex legal matters.
EA vs CPA: Assessing Right Profession for Your Needs
When it comes to tax preparation, you may have heard the name of a CPA or an EA. They are both experts in the field of taxes. But you may be wondering which one is ideal for your situation. While both of these skilled professionals are introduced to the world of taxes through various means, their expertise is slightly different. Both have to take several hours of continuing education in taxation and pass rigorous exams.
A CPA in the United States has completed all the necessary education requirements (150 semester college credits), and has also taken and passed the CPA exam. The CPA designation in the U.S. is regulated at the state level. After passing the exam, the CPA must also take and pass an ethics exam. A CPA is not authorized to practice law or represent clients in tax court, at IRS appeals or at IRS conferences. However, a CPA who attends a 4-part, 60-hour course with an exam that must also be passed, called the Special Enrollment Examination, may call themselves an "enrolled agent" and be authorized to speak or act before the IRS. Most CPAs work for public accounting firms conducting audit work, fraud investigation, and litigation support .
Similarly, an EA has passed a two-part exam, but not the CPA exam and separate ethics test. Like the CPA, EAs do practice before the IRS and can represent clients in all matters related to audits, appeals, and conference. EAs can also assist clients if they need help filing taxes in the U.S. or overseas.
Once you understand the differences between CPAs and EAs then you can determine who is right for your needs. An EA may be right for you if you are faced with an audit or appeals by the IRS or if you or your business have ongoing litigation or tax penalty issues. In these scenarios, the work would be focused on the resolution and execution of the issue with the IRS and the expertise of the CPA is not required.
A CPA is best used if you want your overall financial picture examined, such as your investments, and estate plan. They are also ideal for executive compensation structuring and managed accounts. If you want mitigation strategies for your business or investment structure that will allow you to optimize your tax liability in the future, then a CPA is ideal. It is also very helpful to have a CPA who is familiar with the specific area where the business operates, whether it be international, domestic entity, or investment business.
Tax Attorneys: When to Seek Their Services
When it comes to IRS controversies, complex tax planning, and litigation matters, legal representation is an absolute must. While there are grey areas where a CPA or EA can provide some guidance, paying for the services of a lawyer adds a significant amount of value to these matters. The privilege of client conversations and communication with the IRS affords lawyers significant protections that are unavailable to other professionals, and these can be crucial/enormously valuable when you’re dealing with the most serious collection and audit cases at the IRS.
A lawyer is absolutely necessary for any criminal tax matter, especially because the United States Department of Justice handles those investigations internally and doesn’t share information with the IRS regarding criminal referrals until they’re ready to bring an indictment. Being represented by a defence attorney during any sort of investigation is obviously beneficial to ensure you don’t spend any time in prison as a result of your taxes.
Major corporate and business restructurings require the services of a lawyer. Whether it’s a merger, acquisition, sale, or entity conversion, the legal elements of the process come first and-if all goes well-the accounting elements will follow. Likewise, both inbound and outbound foreign businesses with international treaty issues need legal representation at the audit level and during any litigation, even if it’s just to sit in the room and shoot the breeze with the Judge and IRS in the hopes of developing a relationship that will pay dividends down the road.
Changes in the law caught between tax years? Represented in a different matter on a related issue? They may all require a lawyer to step in and advocate. Those are just a few examples, but the bottom line is do not hire a CPA or EA to represent you when there’s litigation on the table and no amount of money saved in legal fees is worth the risk. If things turn out poorly, you can’t expect much from the appeals process and at that point the IRS doesn’t have to even listen to the client.
Choosing What’s Best for Your Tax Needs
The next step to take is to evaluate your own tax needs and preferences. The first question to ask yourself is, how complex is your situation? Do you have several sources of income, assets and investments that put you in a higher tax bracket? If so, you could benefit from consulting an expert in the field. When it comes down to it, there is no definitive right answer for whether you should hire a CPA , EA or tax attorney. While families who would like assistance preparing their simple tax returns or would like to take advantage of tax strategies provided by CPAs may be satisfied hiring a CPA, an EA has deeper knowledge of the federal tax code and can provide the same services as a CPA. Tax attorneys are able to handle much more difficult tax issues because they are frequently involved with helping clients who are going through more serious tax matters, such as audits, tax court cases or problems with the IRS.