Is Your CPA REALLY the Right Person to be Completing Your Tax Return?

Published May 24, 2012 | By BruceMc

Is your CPA REALLY the right person to be completing your tax return? Did you know that there are different educational requirements for different types of tax preparers?

Maybe you have heard maybe not. The IRS is beginning to mandate preparers who complete your tax return. Yes, if you use a paid tax preparer there are rules that are being mandated by the IRS. These regulations/rules are being put in place in an effort to assure you that you are getting the best possible return from a knowledgeable trained preparer.

So what are they? What regulations are being implemented to protect you?

The IRS will require all individuals who are required to sign a federal tax return as a paid tax return preparer to register and obtain a preparer tax identification number
The IRS will establish competency testing for all paid tax return preparers required to register with the IRS except:

attorneys,
certified public accountants, or
enrolled agents

The IRS will require 15 hours of annual continuing professional education, including three hours of federal tax law updates, two hours of tax preparer ethics and 10 hours of federal tax law topics, for tax return preparers who are required to register. However, the continuing professional education requirements will not apply to:

attorneys,
certified public accountants,
enrolled agents, or
others enrolled to practice before the IRS.

The IRS will place all signing and non-signing tax return preparers under Treasury Department Circular 230.

Wait a minute…

Now I understand why an EA (Enrolled Agent) doesn’t need to be retested or subject to the annual continuing education every year. IRS already requires a very extensive four-part test to become an EA, and Enrolled Agents are required to take 72 hours of continuing education during the 3-year enrollment cycle. CPAs aren’t tested, on tax law, or required to take continuing education covering Tax issues? Attorneys aren’t tested or required to take continuing education covering Tax issues either?

Why not?

The official IRS philosophy is basically one that CPAs and Attorneys are already held to strict guidelines and CPE regulation from their perspective associations and would apply undue responsibilities on them. They say it would be redundant.

A CPA (Certified Public Accountant) once they pass the CPA exam is automatically a tax professional? A newly appointed Attorney who has just past the bar exam is automatically a tax professional?

Really?

The Registered Tax return Preparer will be required to complete 15 hours of educational programs annually:

3 hours federal tax law updates
2 hours preparer ethics
10 hours federal tax law topics

Again, Attorneys, certified public accountants are exempt from this.

Okay, I want to point out that each year CPAs, and Attorneys have required CPE that they must maintain regularly so that they can maintain their status; however the CPE isn’t required in the tax law topics or updates. And the Ethics requirement is the same (at least in MO) but the two hours is not yearly but bundled into a three year span. So the Tax Professional who is a RTRP, is required to have six credit hours of ethics, the CPA is only required to have two. And these vary from State to State. Meaning CPA’s are not regulated by the IRS, but by the states they are in. And this means they don’t have to keep up with tax law or the changes to be a CPA.

This is a problem when people are able to prepare your returns and not be required to keep up with tax law changes, or even tax topics in general, and are held with more esteem in regards to taxing issues then those who spend all their time learning all there is about tax to get you the most accurate return prepared that is possible because they have spent the time learning tax law updates along with tax topics. Not to mention they are required to have CPE in tax law and tax law updates.

Who does your taxes? Do they know tax law?

6 Responses to Is Your CPA REALLY the Right Person to be Completing Your Tax Return?

John on May 30, 2012 at 8:25 am

The most important thing is to do your research before making a decision. The right tax specialist can make tax season stress free.
Nancy Smyth on May 25, 2012 at 7:16 am

Hi All,
Just wanted to let you know that Bruce wrote another great article with more information on this subject, for our mutual friend Seth David of Nerd Enterprises – read There’s a New Kind of Tax Preparer in Town
Nancy Smyth on May 24, 2012 at 10:25 am

Bruce
Thank you so much for doing this guest blog post!

While I was aware that the IRS was requiring all paid tax return preparers to register and obtain an ID number and that there were now going to be some sort of competency testing – I was under the impression that these new mandates covered everyone — including CPA’s and Enrolled Agents.

To my way of thinking “all paid tax return preparers” meant just that – and that anyone (including CPA’s, enrolled agents, and independent folks like yourself) would all have the same requirements. What a shock to find out otherwise.

I guess I need to stop taking things so literally 🙂
BruceMc on May 24, 2012 at 10:08 am

Thanks for your comment Steve…
I would like to point out that although I never said that the person with the designation is automatically “better equipped”, I did point out that as you stated CPAs and attorneys are not just because they are as they are.
I do know the regiments of being a CPA, as I used to be one. I stopped proving what I needed to as I felt cheated by the designation and what I thought it stood for and what I saw after I achieved the status. In MO, actually are a little more involved than what you describe for IL.
Steve I have to say it was you, and there are others who feel as you do, and they go all out to become professional tax preparers. I thank you for that. You and all the others that decide to do that, I highly commend. Tax law is not an easy way to travel.
As to the Ethics issue, no I wasn’t saying that one or the other is “more ethical”. The point I was attempting to address is that the IRS in an effort to showboat the RTRP as being reputable, created an interesting position, and quite frankly is a whole new conversation. I will point out as I am sure you know as well as anyone else in our field, all the ethics training in the world is not going to make a more ethical person. People are or people aren’t, I merely was pointing out that the RTRP ethics training requirement is one set around the Circular 230, whereas the CPE of ethics for CPAs and Attorneys is not. Nor is the CPA requirement of CPE follow any kind of tax law, new or otherwise. And to many people abuse this and rely on software alone.
Again, make no mistake all the CPE in the world that covers ethics will not so make a person ethical, if anything, it will help a non-ethical person learn to buck the system.
As for the thrust of my post, it was not so much as you stated but an effort to point out that the new regulations are very pointed and one sided and that the IRS in all its wisdom is saying they are making the tax preparation industry a safer place for consumers, when they are not apply the protections in place to all who prepare returns.
Julie B. Dailey, EA on May 24, 2012 at 10:05 am

I tell this to my clients all the time. It aggravates me to no end that the general public thinks they are safest with a CPA or tax lawyer. Most have never heard of EAs.

The testing EAs take is now a 3-part test. They morphed two parts together. Part 1 is Individual, Part 2 is Business, Part 3 is Representation and Ethics. I’d always heard Part 2 was hardest…so I studied my butt off. Yes, it was hard, but Part 1 was harder (probably because I figured I knew most of it…and didn’t study very hard).

Thanks for the good blog.
Steve Trojan CPA on May 24, 2012 at 9:34 am

While I might agree with your assertion that a CPA is not automatically a tax preparer, I disagree with your assumption that a RTRP is automatically better equipped to handle taxes than a CPA just because they have to take an exam that only covers personal tax returns.

I was a CPA for 15 years and didn’t know a thing about tax preparation before entering this business in 2002. But as a CPA (or maybe it’s just me) I took my new role as a tax preparer very seriously and not only filled up my CPE requirements with tax related education, but far more education on top of that.

A CPA in Illinois is required to take an average of 40 hours CPE each year (versus 15 for a RTRP). A CPA must be a college grad and in many states have 150 hours of college credits and 1-3 years experience before becoming a CPA. No college education is needed to become a RTRP. The CPA is a rigourous 3 day exam that covers topics such as tax, law, audit and accounting; this makes the CPA well rounded in a variety of issues.

And do you think 2 hours of ethics for a RTRP versus 4 hours every 3 years (in IL) really makes a RTRP more ethical? CPAs must adhere to the CPA Code of Professional Conduct and IRS Standards under Circular 230.

I don’t disagree that a CPA is not automatically a better tax preparer, but please don’t brush all CPAs as not able to prepare tax returns just because a RTRP is taking a competency exam. The real thrust of your post should be how to guide the consumer to choose a competent tax preparer, whether it be an EA, RTRP, or CPA.