There is a great deal of misinformation among the general public regarding qualifications and credentials of those in the tax accounting profession. Qualifications, credentials and abilities are often completely different things. There are a variety of titles used by those in our field, so here is a brief overview to put it all in perspective.
California is one of two states that regulates persons preparing tax returns for compensation. If you are paying for tax help, you will want to be sure your accountant has met this requirement. There are basically four types of tax professionals recognized by the State of California.
Enrolled Agents are a group of tax professionals that receive their credential from the Federal Government. This involves passing a strenuous two day exam offered by the Treasury Department which is 100% tax oriented. Any accounting, or record keeping, questions on the exam are related to tax accounting and not "financial accounting". An Enrolled Agent, or "EA", cannot pass the exam without a substantial amount of tax training and knowledge. This usually requires a fair amount of work experience before sitting for the exam. Once Enrolled Agent status is achieved, a minimum of 24 hours of continuing education is required annually. For most EAs, 50 or more hours is the norm.
Certified Public Accountants, who are licensed by the state where they practice, have passed an accounting test known as the CPA Exam. The exam is not focused on taxation. CPAs are the only category of accounting professional permitted to examine financial statements (and related books and records) and make a written statement as to their accuracy. "Financial accounting" is what CPAs have studied in order to "attest" to the accuracy of financial statements presented by their clients to third parties.
When CPAs attest to the accuracy of financial statements they are following accounting principles which are not the same as tax accounting principles. Annual CPA audits are required by corporations that are publicly traded on stock exchanges. Sometimes privately owned companies must have certified financial statements in order to meet conditions of financing.
What is misunderstood is that CPAs are heavily trained in this socalled "attest function" and do not automatically have proficiency in taxation. Many have acquired proficiency in taxation, but this is due to additional training and on the job experience. Most small businesses do not require audited financial statements and therefore are able to utilize less costly, non-CPA services.
A third group allowed to prepare tax returns in California are tax attorneys. Most tax attorneys limit their tax preparation services to Estate Tax Returns and Trusts. Tax attorneys are usually involved in tax litigation and tax research. Few seem to practice tax accounting or general tax preparation, most likely because attorneys have much higher billing rates for legal matters than accountants have for tax work.
The final category of California tax practitioner is a CTEC tax service provider. These individuals have taken a tax course, posted a $500 bond, and been approved by the California Tax Education Council. This is the minimum bar a California tax preparer must meet in order to operate in the state. Most tax preparers in the chain firms (i.e., H & R Block, Liberty, Jackson Hewett) are CTEC preparers.
So in terms of "credentials" there are CPAs, EAs, Lawyers and CTECs. There are qualified, and unfortunately, unqualified tax practitioners operating under all four categories. We have seen excellent work from all four types of practitioners, and poor work also. One can hold any of these qualifications without a college degree, although in some instances a college degree will reduce other requirements for obtaining a license.
Finding a professional with credentials, abilities and qualifications is often not that easy. For this reason, most successful tax professionals acquire many of their clients through referrals from other satisfied clients. But what do you do if you are new in town and don't know who to ask?
There are some basic questions you should ask any tax professional you are considering. First, what is their operating credential? What educational background do they have? How many years have they worked in taxation? Do they specialize in any areas of taxation? What bookkeeping and accounting experience do they have? Do they guarantee their work? What is the cost? Are they accepting new clients?
Don't bother asking for references because confidentiality laws restrict a tax practitioner from disclosing client information. If you ask for references and are given client names on the spot, you are not dealing with an ethical firm. Names can only be provided with the prior consent of the client, so don't be alarmed if a prospective tax accountant will not provide you with references.
At Hill & Associates we specialize in Individual and Small Business taxation and bookkeeping. Both our tax experts possess over 20 years of full time tax accounting experience, an accounting background in college, and are Enrolled Agents. The only area of accounting we do not practice is financial accounting. When this is required, we refer our clients to CPAs that are experienced in conducting financial audits. Most small and medium size businesses avoid obtaining CPA financial audits of their records because the cost is very high and can normally be afforded by only larger companies.
We are tax accountants because this is our area of interest. Whether you need personal tax preparation assistance or a full range of business services, we are happy to meet with you and discuss your needs. Prospective clients are offered a complimentary 30-minute initial consultation to determine if they will be a good match for our services.
