Editor's Note: This article is part of our 2014 Tax Tips series. Robert Flach is an expert with more than 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.
NEW YORK (MainStreet) You have several options from which to choose when looking for someone to prepare your 2013 federal and state income tax returns.
It is important that the person you chose to prepare your tax returns has a "PTIN" (Preparer Tax Identification Number). Only those individuals who have registered with the IRS and received a PTIN are authorized to prepare income tax returns for compensation. And your preparer must sign your finished tax return. Do not, under any circumstances, use a tax preparer, or file a tax return prepared by someone, who will not sign the finished return.
Several of your options have "initials" a professional designation.
CPA (Certified Public Accountant) Contrary to popular belief, a CPA is not automatically a 1040 expert. A specific CPA may be knowledgeable, educated, experienced, competent, and current in 1040 preparation, and be the perfect choice for your tax situation, but this is only because of the knowledge, education, experience and other factors that are unique to that individual preparer and has nothing to do with the existence of the initials CPA. Just because a person has the initials "CPA" after his or her name does not in any way, shape or form indicate the extent of that person's knowledge, education, experience, competence or currency (i.e. "the state of being current; up-to-dateness") in preparing 1040s. A CPA is the most expensive of the various tax preparer options.
EA (Enrolled Agent) - The only universally accepted and government approved credential that has any meaning when it comes to competence and currency in preparing 1040s is the Enrolled Agent. An Enrolled Agent is not an agent, employee or representative of the Internal Revenue Service. An Enrolled Agent is an independent tax professional who is "enrolled" to act as a taxpayer's "agent" in dealings with the IRS. In order to become an EA an applicant must pass the "Special Enrollment Examination," a three-part comprehensive test covering individual and business tax returns. EAs must complete 72 hours of continuing education courses in federal taxation every three years.
RTRP (Registered Tax Return Preparer) This is the credential issued by the IRS under the mandatory tax preparer regulation regime that was shut down by the Court in early 2013. In order to receive this designation the applicant had to pass an exam in basic 1040 knowledge. This credential no longer exists.
There are other tax preparer certifications, but none are universally accepted by the industry, nor are they acknowledged or recognized by the Internal Revenue Service.
The oldest and most common of these credentials are Accredited Tax Preparer (ATP) and Accredited Tax Advisor (ATA), both issued by the Accreditation Council for Accountancy and Taxation, an affiliate of the National Society of Accountants. The ATP is for 1040 preparers and the ATA is for preparers of estate and trust and business entity returns.
Both designations require the applicant to pass a 100 question multiple-choice test, and the ATA also requires five years of experience in tax preparation, compliance, tax planning and consulting. ATPs must complete 72 hours of continuing professional education in taxation or related subjects every three years. The ATA credential calls for 90 hours of CPE over a three-year period.
Then there is the independent "unenrolled" preparer, who does not possess any "initials" or professional designation. Just because a tax preparer does not have initials after his or her name does not mean that he or she is not a qualified, knowledgeable, experienced, competent, and current tax professional. When looking for a person to prepare your 1040 do not limit your search to individuals with "initials". While there are indeed incompetent or marginally competent tax preparers out there, both with and without initials, there are many, many, many, many excellent independent unenrolled preparers. This group is probably the most reasonably priced alternative.
Last on the list is the commercial tax preparation chain such as H&R Block, Jackson Hewitt, and Liberty Tax Service. Despite what you may think, these commercial preparers aren't cheap. When it comes to "return on investment" you will get much more value for your money in terms of current and ongoing personal and professional service by going to an independent tax preparer, "initialled" or not.
Of course you also have the alternative of preparing your own tax returns using tax preparation software. But no tax preparation software is a substitute for knowledge of the Tax Code. And no tax preparation software is a substitute for the services of a competent tax professional. As with any software program the rule is "garbage in - garbage out". If you don't know how to enter the information, or what information to enter, you will not get the best, or even the correct, answer. If your return is audited you cannot avoid penalties by blaming any errors on the software.
Written by Robert D. Flach for MainStreet