Businesses rely on competent, reliable, and ethical tax practitioners to ensure compliance and legally minimize their tax burden.
Widely recognized tax credentials include enrolled agent (EA) and certified public accountant (CPA). Both EAs and CPAs handle taxes, while CPAs also offer accounting, attest, and business consulting. The requirements to obtain and keep each credential also differ.
What is an enrolled agent (EA)?
The Internal Revenue Service (IRS) grants the EA credential—the highest it awards—to candidates who pass the Special Enrollment Exam (SEE). Candidates must pass all three parts of the 85-question SEE, which focuses solely on tax.
Former IRS employees who dealt with tax issues for at least five years need not take the SEE.
The IRS does not require any education or experience to become an EA, though EAs must complete 72 hours of continuing education every three years.
EAs enjoy unlimited practice rights before the IRS. This allows EAs to handle any tax matter, including preparation, IRS representation, and consulting.
Other specialties, such as accounting, remain outside the scope of the designation. An EA can provide some of those services legally but lacks any special qualifications to do so.
What is a certified public accountant (CPA)?
State licensing boards issue and regulate the CPA designation according to their own rules, but many requirements exist in most or all states.
All states currently require 150 semester hours of college education for new CPA applicants, based on a curriculum determined by each state. CPAs must hold at least a bachelor's degree. Many earn a master's degree or higher because most bachelor's degrees only require 120 semester hours.
CPA candidates must pass all four sections of the Uniform CPA Examination: Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG). REG focuses primarily on tax. The test takes 16 hours in total, though candidates take each section on separate days. Pass rates hover around 50%.
All states require at least one year of experience—sometimes more—though what kind of work qualifies differs by state. Many states require an ethics exam, among other prerequisites.
Continuing education requirements also vary by state. For example, California requires 80 hours every two years, among many other rules.
Like EAs, CPAs can handle any tax matter before the IRS. CPAs, unlike EAs, may also offer attest services, including financial statement reviews and audits. Their extensive credentialing requirements ensure that CPAs possess a broad understanding of accounting, tax, and business concepts.
CPA vs. EA
Either designation may prepare tax returns, represent clients before the IRS, and consult on taxes. Five factors determine whether an EA or a CPA is more appropriate for tax matters:
- Focus on tax. EAs specialize in tax, while not all CPAs do.
- Other services needed. Bundling multiple services with one provider may save companies time and money. CPAs offer a much wider range of services than EAs.
- Professional relationship desired. CPAs often serve as trusted tax, accounting, and business advisers for their clients. EAs lack specialized accounting and business training. Also, EAs don't typically perform the broad scope of services required to get a full understanding of a client's business.
- Qualifications required for each designation. Becoming a CPA entails stricter requirements than earning an EA credential. Companies with extremely complex issues sometimes prefer a CPA.
- Budget available. EAs are usually—but not always—significantly cheaper than CPAs. Businesses with no need for a CPA may save money by choosing an EA.
Both EA and CPA certification indicates a competent professional. Which is more appropriate for a business depends on the unique needs of each company.
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