A CPA tax practitioner is regulated by the Department of Treasury’s Circular 230 which sets high practice standards. CPAs are permitted to practice before the Internal Revenue Service without restriction.
CPAs are accountable to one or more professional associations. Further, CPAs must commit to a minimum of 120 hours in continuing education every three years.
A CPA who specializes in taxation may typically have more technical knowledge in the field. Whether your return is simple or complex, you can benefit from the knowledge and more diverse planning options known to a CPA tax specialist. You can also rest assured that your tax preparer has a solid code of ethics and takes their continuing education seriously.
Important Considerations Regarding Your Current Tax Preparer
Attorneys, Certified Public Accountants (CPAs) and Enrolled Agents (including enrolled actuaries and enrolled retirement plan agents) are enrolled tax preparers and have always been accountable to the IRS. The remainder of paid preparers in our nation have never been registered with the IRS, and are referred to as unenrolled preparers.
There is no federal licensing of unenrolled tax preparers in the U.S. and only four states even have a registry requirement (see sidebar regarding why there is no Federal regulation of unenrolled tax preparers.) Only Oregon and Maryland test for competency and require qualified continuing education of the unenrolled tax preparer. California's unenrolled preparers must have some level of qualifying tax education and are required to continue their education, but they are not required to prove competency via testing. So, with few exceptions, anyone in the U.S. is allowed to be paid for preparing a tax return, even though they may have insufficient tax knowledge and/or an inadequate education.
In 2009, a study by the Treasury Inspector General for Tax Administration (TIGTA) reported that unenrolled paid preparers had a very high error rate in tax preparation. They found that nearly two out of three preparers from commercial chains and small mom-and-pop offices had failed to complete accurate federal tax returns.
In 2011, the IRS started to address the incompetency of this large majority of the nation's preparers. Testing and registration with the IRS began in August 2011 and was to be completed by January 1, 2014 in order for any unenrolled preparer to continue their practice of preparing income tax returns. Unfortunately, in January 2013, the testing and registration requirements were suspended by a federal court which ruled that it is unconstitutional for the IRS to regulate tax preparers.
So, our nation continues to allow unenrolled preparers to be paid for preparing income tax returns for the general public. Unenrolled preparers who sat for the RTRP exam qualified for a new category of preparers, i.e., the Registered Tax Return Preparer. However, RTRPs who passed this exam only established that they have minimal competency for preparing individual income tax returns, and they continue to prepare business returns without any proof of competency.
A tax return preparer's qualifications should include a strong foundation of education and experience; testing for "minimal competency" cannot assure the public of this. In addition, a preparer must be able to identify real life tax situations, erroneous documents, and numerous exceptions to basic tax preparation. Simply being able to memorize some of the tax laws to successfully pass an exam cannot ensure that a tax preparer is able to apply the complexity of tax law in actual practice.
So, what comprises the foundation of your tax return preparer's education and experience? Further, how much continuing education do they commit to subjects on taxation? Do they continue to broaden their tax knowledge base or do they simply attend a one or two-day update course each year?
Be sure that you really do KNOW your preparer's competency!