Do credentials really matter when taking tax advice?

Where the claim comes from

Tax information is everywhere, and plenty of people without professional credentials explain tax concepts well. Some also argue that credentials are just gatekeeping, or that experience matters more than letters after a name.

Experience does matter. But credentials answer two questions that experience alone does not: has this person passed a recognized test of tax knowledge, and is there someone you can complain to, with the power to act, if the advice is negligent or dishonest?

What the law actually says

Circular 230, 31 C.F.R. Part 10, governs practice before the IRS. Practice includes preparing and filing documents, communicating with the IRS, and representing a client at conferences, hearings, and meetings. Section 10.3 authorizes attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents to practice, with the actuary and retirement plan agent credentials limited to their specialties. Enrolled agents earn the credential through a three-part IRS examination or qualifying IRS experience, and they must complete continuing education.

The IRS explains that enrolled agents, CPAs, and attorneys have unlimited representation rights and may represent clients on any matter, including audits, payment and collection issues, and appeals. Preparers who hold an Annual Filing Season Program Record of Completion can represent only clients whose returns they prepared and signed, and only before revenue agents, customer service representatives, and similar employees, not in appeals or collection matters. Preparers with only a Preparer Tax Identification Number (PTIN) have no authority to represent clients for returns filed after December 31, 2015.

Anyone may prepare federal returns for pay with a PTIN. In Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), the court held that the IRS lacked authority to require testing and continuing education for all paid preparers. That is why an uncredentialed preparer can still prepare returns.

Credentialed practitioners must meet Circular 230's standards, including due diligence (§10.22), the return standards in §10.34, and the written-advice rules in §10.37. The Office of Professional Responsibility can censure, suspend, or disbar them. In Texas, CPAs are also licensed and regulated by the Texas State Board of Public Accountancy.

What is true and what is not

A credential is not a promise of good results. Credentialed professionals can make mistakes, and some uncredentialed preparers are careful and knowledgeable. But when a problem reaches an audit, an appeal, or collection, only an attorney, CPA, or enrolled agent can represent you without limits. And if a credentialed practitioner acts improperly, you have somewhere to file a complaint that can lead to discipline.

• True: a credential shows verified qualifications and ongoing obligations.
• True: uncredentialed preparers can legally prepare returns with a PTIN.
• Not true: anyone can represent you in an IRS audit, appeal, or collection case.
• Not true: a large online following is a substitute for a verifiable license.

What to do instead

Before you rely on anyone's tax advice, check their credential. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to confirm enrolled agents, CPAs, attorneys, and Annual Filing Season Program participants. For CPAs, use the state board's license lookup. For attorneys, use the state bar's directory.

Ask what the professional will do and whether they can represent you if the IRS contacts you. Confirm that the preparer signs the return and includes their PTIN. Be cautious of anyone who will not sign, who bases the fee on the size of your refund, or who asks you to sign a blank or incomplete return.

Once you hire someone to represent you, sign Form 2848, Power of Attorney and Declaration of Representative, so the IRS can deal with that person on your behalf. Form 8821 lets a person see your tax information but does not authorize representation. Keep copies of both, and revoke them when the engagement ends.

If a preparer or practitioner has acted improperly, the IRS accepts complaints about preparers on Form 14157, and state boards accept complaints about their licensees. Complaints about a practitioner's conduct under Circular 230 can be referred to the IRS Office of Professional Responsibility.

How ebotCPA helps

Ebot Mbi is a CPA and an enrolled agent and is subject to Circular 230 and Texas State Board of Public Accountancy rules. We review your situation, explain the authority behind our recommendations, and can represent you before the IRS under a power of attorney.

Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.

Primary sources

1. 31 C.F.R. §10.3. Who may practice before the IRS.

   Authorizes attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents to practice before the IRS.

2. 31 C.F.R. §10.7. Representing oneself; limited practice.

   Describes the limited representation available to individuals who are not practitioners.

3. IRS, Understanding tax return preparer credentials and qualifications. Representation rights by credential.

   “Enrolled agents, certified public accountants, and attorneys have unlimited representation rights before the IRS.”

   Explains unlimited, limited, and no representation rights by preparer type.

4. Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014). Limits on IRS regulation of paid preparers.

   Held that the IRS lacked statutory authority to impose testing and continuing education requirements on all paid preparers.

5. IRS, Choosing a tax professional. Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

   “Anyone can be a paid tax return preparer as long as they have an IRS Preparer Tax Identification Number (PTIN).”

   Points taxpayers to the IRS directory for verifying credentials.

Frequently asked questions