The Difference Between Tax Attorneys, CPA’s, and Enrolled Agents
Choosing the right person or firm to represent you before the IRS can get overwhelming at times. It is a decision that could make the difference between putting your tax problems behind you with a clear path forward and having your assets seized by the IRS or State of Michigan, with no end to your problems in sight.
Generally speaking, there are three types of tax professionals that are licensed to represent taxpayers before the IRS: Attorneys, Certified Public Accountants (CPA’s), and Enrolled Agents (EA’s). It is important to understand the difference between these categories of professionals so that you can go about making an informed decision and pick the professional that’s right for your situation.
Attorneys typically are the most educated and trained professionals in the realm of tax. It generally taxes seven years of post-secondary education to obtain a law degree, plus an additional year of law school for a Master of Laws in Taxation degree. All attorneys have gone through a rigorous educational training and were able to prove their knowledge and abilities in the field of law and advocacy by passing their state’s Bar Exam. Lawyers are uniquely qualified to negotiate with the IRS on your behalf, or defend you in an audit or other proceeding. Law schools are designed to teach students two main skills: advocating for their clients, and researching/analyzing/applying the law to a specific set of facts and circumstances. In practice, lawyers spend their days applying this skill set to obtain the best possible results for their clients in any given situation. When dealing with the IRS, or State Treasury, these are the skills that generate results. If your problem is that you owe back taxes, you need an experienced negotiator and zealous advocate on your side to get you the lowest possible payment plan or tax settlement. If you are undergoing an audit, it is important to have someone who can efficiently and effectively research the tax laws, then apply the law to your specific set of facts, and use what they discover to effectively negotiate with your auditor to get you the best results. For tax litigation, or criminal tax defense, you definitely need an attorney to help navigate through the process and negotiate with the government attorneys on your behalf.
However, it is important to remember that not all lawyers are created equal, or equally fit for every task. A thorough and comprehensive understanding of tax law and IRS procedures is the most important quality to look for in choosing a representative. No matter how talented a lawyer is, they won’t get very far without a thorough understanding of how the tax agencies operate, and where the loopholes are. Only a lawyer who practices tax law full-time can dedicate the time that is necessary to keep up with the constant barrage of changes to the tax rules and regulations. It is also important to look at the education background of any lawyer you are thinking about retaining. Most law schools do not require their students to take a single course in tax law before graduating. Only a lawyer with a Master of Laws in Taxation has had extensive legal training in the field of tax laws and procedures. They spend an extra year in law school solely to learn the art of researching, interpreting, and arguing the provisions of the Internal Revenue Code to get the best results for their clients.
Certified Public Accountants (CPA’s) generally have extensive education and experience in the realm of accounting. Their specialty lies in their ability to work through the numbers to find the best way to report a transaction, and spend their days generating financial reports and filling out tax returns for their clients. While CPA’s generally have a thorough understanding of accounting practice and tax laws, they do not have any formalized training in the art of advocacy. Their skill lies in working with numbers, not people. For this reason, CPA’s generally do an excellent job at preparing tax returns, and making sure all of the numbers are accurate and reported in the right place, but are not very good at communicating their position to others in a clear and concise manner. Matters that require involved accounting and/or preparing complex tax returns are generally handled best by a CPA, but when it comes to presenting the position you took on that return, an attorney is probably best. Because of the relative strengths and weaknesses of a CPA and a tax attorney, for some of the more complicated matters, it is best to have both on your side. Most tax attorneys have CPA’s that they work closely with for the accounting aspect of a case, and most CPA’s have tax attorneys they work closely with to represent their clients before the IRS.
Enrolled Agents (EA’s) are people who have passed a competency test administered by the IRS, to allow them to represent taxpayers before the IRS. Generally speaking, EA’s have the least amount of education and training of all taxpayer representatives. There are no educational requirements to become an Enrolled Agent: all they have to do is pass the IRS’s competency exam. People who become Enrolled Agents are generally those who do not possess the level of education required to become an attorney or CPA, or those who have completed their education requirements, but were unable to pass the Bar Exam or CPA Exam. Because they are licensed by the federal government and not by the states, there is far less oversight of their activities. They are not accountable to a state ethics board like the Michigan State Board of Accountancy, or the Michigan State Bar Association. Also, because they have far less time and money invested in obtaining their license, they have more incentive to do whatever they can to make a fast buck at their clients’ expense. This is not to say that all, or even most, Enrolled Agents are unscrupulous or unethical: just that they are more likely to be than other tax professionals. Hiring an Enrolled Agent is usually the least expensive route for budget-conscious consumers, and most of them would do a fine job at handling simple, straightforward matters.
Beware of Tax Relief Scams
You have probably seen many “tax resolution firms” advertise heavily on television and radio programs. Some might have sent letters to your house, or even called you. Many of these companies have been known to charge high up-front fees, but deliver little to no value to their clients in return. Many of these firms eventually suffer the same fate: thousands of complaints filed against them; followed by class-action law suits; then bankruptcy; and sometimes even criminal charges. It is a good idea to know who you’re dealing with before hiring anyone to help with your situation. A good place to start is by checking with the Michigan State Bar to be sure that you are dealing with an attorney licensed to practice in this state. Also, searching the Better Business Bureau will help you uncover any complaints that been have filed against the business. Lastly, before signing a form 2848, IRS Power of Attorney, you should check to make sure the bottom of the second page has an “A” in the designation column, and “MI” listed as the jurisdiction. This simple check will tell you whether or not you have a lawyer representing you, or some other “professional.” Some examples of large, national “tax resolution firms” that have recently gone under, leaving their clients high-and-dry, include:
- American Tax Relief: shut down by the FTC in 2010, accused of using deceptive practices to create a $60 Million scam by falsely claiming it could settle tax debts for pennies on the dollar, charging up to $25,000 in fees while not providing the services promised.
- J.K. Harris, once the largest tax resolution firm in the country, was liquidated in bankruptcy after being sued by more than 20 state attorneys general for charging clients to settle their tax debts when they did not qualify for the program.
- Roni Deutch, the Tax Lady closed her law firm in May 2011, after all of her assets were frozen by a Superior Court judge for her deceptive practices. She turned in her license to practice law and left roughly 4,000 clients stranded with nowhere to turn. She was charged with dozens of crimes related to the practice of her tax resolution office.
- Tax Masters was hit with a roughly $200 million judgment by a Texas court for deceptive practices. The company filed bankruptcy in March 2012 with upwards of $10 million in unpaid debts, and less than $50,000 in assets available to pay its creditors.
Don’t fall victim to pushy salespeople promising to settle your tax debts for pennies on the dollar: hire a qualified, local tax law firm with proven results to help you. At Ayar Law, we know the value of satisfied clients, which is why we treat each client as if they are our only one. We don’t employ any salespeople; we don’t make any empty promises; we let our results speak for themselves. Our principal office is located in Southfield, MI, and we are always available to answer any questions or address any concerns you may have about our services. So, contact us today to schedule your free consultation and hear about how we can help you put your tax problems behind you.