Choosing a Tax Professional
Who should you hire when you have a tax problem?
Enrolled Agent (EA)
An enrolled agent is authorized by the IRS to represent taxpayers before the IRS for audits and collections. EAs can advise and prepare tax returns. While there is no educational requirement to become an EA, there is a short exam administered by the IRS that a person must pass in order to become an EA.
Certified Public Accountant (CPA)
The educational and licensing requirements for obtaining a CPA are:
- 5 years of education (bachelors and usually a masters)
- A passing score on the CPA exam
CPAs do not all specialize in tax. The accounting profession is broken down into internal audit, tax, and consulting. Even within tax, CPAs can specialize in individual, corporate, state and local, and international tax. CPAs prepare returns, ensure you are in compliance with tax code, and maintain business and financial records. A CPA is a great choice if you are current on your taxes and do not have outstanding tax issues.
Tax Attorney (JD)
The requirements for a licensed attorney are as follows:
- 7 years of education (bachelors and juris doctorate, JD)
- Passing score on the bar exam
Attorneys can specialize in estate planning, personal injury, criminal law, bankruptcy, immigration, and more. Some may decide to specialize in two or three areas. There is no formal requirement for an attorney to call themselves a “tax attorney” or “immigration attorney.” As with CPAs, you want to ensure that the attorney has experience in the specific area of tax for which you are seeking help. Tax is probably the most specialized of the different practices. Some lawyers will take an additional 1 year of law school to earn a tax LLM in order to learn this specific body of law. However, for attorneys that have tax experience, an LLM is unnecessary.
Attorneys are trained to advocate for your legal rights and will fight to ensure that your rights before the Internal Revenue Service are protected. A good tax attorney should have a solid understanding of IRS procedures for tax controversy cases.
Situations Where you may Need a Tax Attorney
- Audit representation – An EA, CPA, or attorney can represent you in an audit, but only an attorney can litigate your case in tax court if needed. There are some exceptions whereby an EA or CPA can take an exam administrated by the US tax court, but only a 100 have passed nationwide in the past 16 years combined. Source. Cases are very rarely litigated and are usually settled prior to trial by IRS Appeals; however, the IRS knows that if you’re represented by an attorney that the case has the potential to go to litigation. The IRS is required to consider the hazards of litigation in determining an appropriate settlement. You have much more leverage with attorney representation.
- Potential fraud – If you need attorney-client privilege to discuss a potential tax fraud issue. Attorneys can maintain attorney-client privilege and cannot be forced by a third-party, including government entities, to provide confidential information. Under federal law, CPA/accountant-client privilege is not recognized. Enrolled agents may have limited privilege in connection with a tax audit or collections, but it does not extend to tax return work-papers or to criminal proceedings. In order to resolve your issues it is important that you are able to discuss freely with a tax professional without worrying whether the information you provide may be used against you by the IRS, whether in a civil or criminal investigation.
- Tax debt – If you owe back taxes, only attorneys can represent you in bankruptcy proceedings. Many non-attorneys in this field are not even aware that federal taxes can be discharged in a Chapter 7 bankruptcy discharge. However, for small tax due balances (under $50K) or where a Chapter 7 is definitely not a option for you, a CPA specializing in tax debt cases should suffice.
- Tax return delinquency – If you have not filed your tax returns for many years, you could be subject to fraudulent failure to file penalties and even criminal prosecution in extreme cases.
- Unreported foreign accounts – The IRS aggressively pursues individuals who have unreported foreign income and assets, assessing civil and criminal penalties in some cases. There are offshore compliance options for such individuals that a tax attorney can guide you through to minimize your risks.
“Tax Professionals” You Should Always Stay Away From
There is an abundance of individuals that call themselves “tax professionals” that you should never hire. The IRS will almost always hold you responsible for additional taxes, penalties, and interest, regardless of the person who prepared the returns.
Tax resolution firms. “Tax resolution” firms advertise heavily on television, online, and on the radio, promising relief which they can not deliver. They have generic-sounding business names and don’t use any of the owners’ names in the business name. As a result, if the company goes under or enough complaints are filed, they can just shut down the business and open up another with no personal accountability. These firms use high-pressure sales techniques to extract substantial retainers. Unlike lawyers or CPAs, these firms are not subject to any professional regulations. They are allowed to charge whatever fees they are able to extort from their clients. Some common characteristics of these firms are to use BBB accreditation and hundreds of fake online reviews to convince clients of their legitimacy.
Here’s an example of a marketing video for a tax resolution firm that went out of business. They marketed to those with tax debt of greater than $20,000 and suggested they could reduce their debt to $1,500 or less. After being sued by the FTC and thousands of clients they ripped off, the owners probably still walked away with a substantial amount of money. If you’re in Houston, you may also have heard of Tax Masters. They went out of business and the owner spent jail time for tax fraud, and the clients who went to them were left on the hook. Here are some more examples of resolution firms that have been sued and gone out of business:
– American Tax Relief
– Roni Deutch “the tax lady”
– JK Harris
We get a lot of fallout clients from companies such as these, but unfortunately for many clients, by the time they come to us they’ve already spent thousands of dollars without any results.
Unregistered tax preparers. Unregistered tax preparers have no professional certifications and have not been able to demonstrate any sort of tax competence. These tax preparers will seek to maximize your refunds without adequate support in order to get your repeat business. Many will outright steal part or all of your tax refund. While the IRS has been vigilantly trying to shut down these businesses, it’s hard to catch “phantom” unregistered tax preparers who prepare returns but do not sign as the tax return preparer on the tax returns. This makes these individuals hard to detect. You could end up owing a substantial amount of money to the IRS if false deductions and credits were taken. Within the group of unregistered tax preparers, there are businesses called “notario publicos” or commonly just “notarios“. Notarios prey especially on the Hispanic population and take advantage of immigrants’ poor understanding of U.S. law. They mislead and steal from customers. They will often tell their clients that they are attorneys or CPAs. If you’re unsure of a person’s credentials, you can look up their information as follows:
When you are ready to work with an experienced attorney to put your tax problems behind you, give us a call (281) 746-6066.