Most of us have heard of a CPA, and we are aware that there is some lessor designation of ‘basic tax preparer’ like what you will find at an H&R Block, but what is this EA we are finding more and more prevalent?
EAs are Enrolled Agents. They are federally licensed tax practitioners who may represent taxpayers before the IRS when it comes to collections, audits and appeals. As authorized by Department of Treasury’s Circular 230 regulations, EAs are granted unlimited practice rights to represent taxpayers before the IRS and are authorized to advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Enrolled Agents are the only federally-licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS.
When it comes to tax preparation, EAs and CPAs both prepare business or individual returns as well as represent you in a Federal audit. However, EAs end up with a slight edge. Since CPAs are licensed through their state, when it comes to representing a taxpayer in a state audit a CPA can only do so in the state wherein they are licensed. An EA can represent a taxpayer in any state.
Additionally, while both EAs and CPAs do continuing education, EAs are the only ones required to do continuing education specifically related to tax preparation and audit representation, allowing EAs to be better informed on the regular changes to tax laws.
Nevertheless, CPAs have their own edge. Being geared more toward auditing and other accounting practices CPAs are the only ones able to prepare certified financials, and generally are who you would want performing your company’s internal audits.
Unlike H&R Block’s basic tax preparers, both CPAs and EAs are required to pass licensing tests. EAs take a three-part test to prove proficiency in individual and business tax preparation as well as audit representation and knowledge of the tax laws. CPAs take a four-part test covering a wide range of accounting practices and tax law, but are far less focused taxation.
So which is better? Neither is better, but rather they are two sides of the same coin. A taxpayer needs more than just a tax expert and more than just an accounting expert. Businesses and individuals need both the tax guru (EA) and the accounting guru (CPA). That’s why at our firm one partner is an EA and one is a CPA, so you can have the expertise of both.