This post is not about the different types of credentials for paid tax practitioners. You can read about that here. This post is about the difference between box fillers and true tax professionals. Even someone with letters can be a box filler instead of a true tax professional.
If you are a taxpayer reading this I hope it gives you some insight into why some of us charge what we do, why some of us ask way more questions than your prior preparer did, and why some of us get really salty and give you a version of “don’t let the door hit you in the butt” when you tell us in March that someone at your church will do your taxes more cheaply and without all the questions.
If you are a tax practitioner (enrolled or unenrolled, full time or part time, self employed or employee) reading this I hope it makes you think about your professional obligations and what type of tax professional you currently are and what type you want to be. Again, not the letters, letters show a degree of dedication and seriousness, but aren’t a guarantee of passion for the profession or, sadly, competence.
I’ve been noticing certain entrepreneurial types selling practitioner education, especially for the EA credential (which requires a test but not a college degree or an apprenticeship period), by saying that once someone completes the training and/or passes the EA exam that they are ready to prepare tax returns and represent taxpayers before the IRS. They are not ready. They are especially not ready to open their own businesses (many have no idea about information security requirements, insurance, etc.). Now, I love the Enrolled Agent credential because it doesn’t present as many barriers to entry to the profession as, for example, the CPA credential. Too often these barriers to entry have been arbitrarily used to keep our profession old, white, and male. But the lack of barriers to entry is both a blessing and a curse.
Lately I’ve been tweeting about some of what I see in FaceBook groups for paid tax practitioners. Some (not all) of these practitioners are new EAs and they are now opening their own tax practices without any actual experience preparing tax returns. It’s awful. Truly awful. Not as bad as some of the advice being given by finance and business “influencers” on the various social media platforms (save me from Tik Tok Tax!), but still pretty bad. Here are a few examples:
- An investment adviser who does “a small amount of tax prep” asking other professionals how to set up accounting software.
- A brand new CPA with zero tax experience preparing returns for “friends & family” with zero awareness of the most basic knowledge needed to prepare a Schedule C (Profit/Loss from Business)
- Paid preparers telling other paid preparers who does and doesn’t qualify as a dependent without explaining the tests for “qualifying child” v “qualifying relative” or citing form instructions or any substantial authority
So what is the difference between a true tax professional and a box filler?
- True tax professionals know to consult the form instructions and/or a quick reference tool (which they are willing to purchase each year) before asking questions of other practitioners on social media. It always amazes me how many people who get paid to prepare tax returns clearly do not consult the form instructions when they have a question about an entry on a return.
- True tax professionals understand the concept of “substantial authority” when taking a position (even something as seemingly obvious as filing status or who qualifies as a dependent) on a tax return. IRS publications and what other people said on social media and googled articles may all be correct, but they are not authority. Tax practitioners need to be aware that there is actual “substantial authority” underlying the correct answers and know where to find it just in case the return is ever examined (audited).
- True tax professionals have a grasp of tax concepts beyond simply which amounts from which forms go on which lines of a tax return. They understand how the lines and forms are related to each other and the tax concepts (capital gains, passive income, business income & expense, etc.) underlying the mechanics of the return. Box fillers know mechanics (what goes where). True tax professionals can look at a tax return and spot items that look “wonky” and can (and will) go back into their software to investigate.
- True tax professionals do not rely on software to find errors or to prepare a return. They use it for automation and arithmetic. They know enough to be able to spot when the arithmetic might be wrong or when the return is not correct (i.e., something is being reported on the wrong line, form, or schedule).
- True tax professionals, even if they rarely consult the Internal Revenue Code (IRC), understand fundamental concepts in tax law such as gross income, business versus hobby, capital gains, etc. They may not be able to quote IRC “chapter and verse” (yet), but they have learned enough to have internalized the fundamentals.
- True tax professionals know what they don’t know and know when to refer a client or potential client to a specialist. For example, I know the basics of cryptocurrency taxation and if one of my clients decides to dabble, I’m pretty confident that I could prepare an accurate return. If, however, a serious crypto trader wanted to be my client, I would consult with the crypto specialists I know to determine what additional skills and software I should have before accepting this engagement. I might need to spend money to get the education and resources I need to take this client but that could also open the opportunity for more of the same type of client. If I’m not willing or able to spend the necessary money and time (maybe I just don’t want to do that kind of work) then I am ready to refer this client to someone who specializes.
All that said, many taxpayers only need a box filler. Single people with a few W2s and no children who could DIY but don’t want to do not necessarily need a true tax professional. The problem with choosing a box filler is that if life changes complicate the tax situation your box filler may not know how to prepare the return. And worse, the box filler may not know what they don’t know. Taxpayers should exercise caution when choosing someone to prepare their tax returns and anyone accepting payment for preparing a tax return needs to consider the harm they are doing to taxpayers and the professional preparer community when they work outside their competence level.