Over the next few weeks, you will see a lot of articles concerning finding a tax professional to prepare your tax return. I’ll have a post on that topic soon but before that, I wanted to cover what the alphabet soup you will be hearing actually means. CPA, EA, RTRP, ERO, or JD-you see them after tax professional’s names or in advertising but what do they mean.
Currently, all you need to prepare a tax return is a PTIN (Preparer Tax Identification Number). This is issued by the IRS and the number is used by the preparer when they sign a tax returned they prepared instead of their Social Security Number. No training or testing is required. This is changing. A minimum competency test is now live and by the end of 2013, all preparers will have to pass the test in order to prepare tax returns for compensation. The new RTRP (Registered Tax Return Preparers) will also have an annual continuing education requirement of 15 hours. All the hours will be tax related. Currently on hold, part of the new program will include a background check to weed out preparers with a criminal history. By the end of 2013, anyone wanting to prepare tax returns for the public will need to pass the minimum competency test and a background check before they are issued the PTIN and take continuing education to maintain their credentials.
Probably the most identified with taxes, a CPA (Certified Public Accountant) generally has a degree in accounting. They are also certified by the state which means the actual requirements vary from state to state. Besides the decree, most states require the accountant to work for a CPA for a period of time and to take an extensive test. They also have an annual continuing education requirement. A CPA is trained and tested on all areas of accountancy including taxation. Some CPAs specialize in one aspect of the field such as tax or audit. Others have a more general practice.
An attorney (JD) is a law school graduate. They have then passed the state bar exam to practice law in that state. If they want to practice in more than one state, they need to pass the exam for that state. Of course they have continuing education in any area of law not just taxation. Some specialize in taxation others do little or no tax work.
The Enrolled Agent (EA) designation is an IRS program. A preparer qualifies by either working for the IRS in certain positions or taking an extensive test on all areas of tax. They also have continuing education requirement of 72 hours over 3 years and all the hours have to be in taxation. They can practice in any state.
ERO stands for Electronic Return Originator. This title is given to someone on who can electronically file tax returns. Unless they are also a preparer (RTRP, EA, CPA, JD) they won’t actually prepare returns. You’ll see this when a businesses or organization will file your prepared tax return for you. Locally, the Credit Unions have provided this service for taxpayers who have done their own return or used a preparer who doesn’t e-file.
Which set of letters is best? It depends on what you need? If you just need to e-file you return, all you need is the ERO but many preparers also offer the service to the public. After all, they are also EROs so they can file client returns. Looking for someone to prepare your tax return? That’s where some research is necessary and will depend on the specific preparer and what you need. (Tips are coming.) The major difference between the RTRP (general preparer) and the EA, CPA, or JD is what they can do for you with the IRS. A general preparer can help you with the IRS on a return they prepared if the 3rd party designee box is marked. They are also limited to helping on audits and account issues. The remaining preparers can represent any client on any issue the IRS throws at them.
Those are the major tax players the general public will encounter. Which is best for you? That post is coming soon.