Robert D. Flach has put up another one of his occasional posts where beats up on my profession:
Don't assume that because a person has the initials "CPA" after his name he is an expert when it comes to federal and state income taxes!
He then spends his next 10 paragraphs elaborating on our shortcomings. And that's fine, to a point. Not all CPAs are qualified tax preparers. By the same token, not every lawyer is capable of defending you on a murder charge. But the guy you want by your side when the state wants to send you to the chair is definitely going to be a lawyer. And while not all CPAs should be your tax advisor, many of the best tax advisors are CPAs.
That doesn't mean everybody should hire a CPA to do their tax returns. Millions of tapayers do just fine going to an unenrolled preparer like Mr. Flach, or a storefront franchise preparer, or by booting up Turbotax. Enrolled Agents are often excellent return preparers. In many cases a lawyer, or a lawyer-CPA, could be the best match for your needs.
Who should consider a CPA? Certainly you should if you run a business; the bigger the business, the more likely it is that you will want a CPA. As you start needing reviewed or audited financials for your lenders or investors, you are likely to engage a CPA firm. There are often cost and convenience advantages of having the same firm help you with your taxes as with your financials. From what I have seen, CPAs are far more likely to have experience in business tax issues, from entity structuring to multi-state and international issues.
Even if you don't have a business, sometimes a CPA may be the right tax professional for you. While you don't have to be a CPA to be a tax pro, and not all CPAs are qualified tax pros, many are. A solo CPA may well be the best tax pro in your community, or she might be the one with the most experience in some issue that you face. And while Robert says we CPAs are expensive, that's not always true -- and when it is, you might find that nothing costs more than cheap tax advice.
As far as competency goes, I think CPAs who practice in tax tend to be more competent than non-CPA preparers (I don't have enough experience with EAs to put them on a curve). If you could chart the competence of tax pros, I believe the chart would look something like this:
I'm not saying there aren't extremely capable unenrolled preparers -- Robert, for example -- or inept CPAs. You find both colors at each tail of the competence curve. But in my experience, the right end of the competence curve will have more CPAs.
So how should you pick a tax pro? Ask around. Bankers and lawyers often know who the best local tax pros are. Mr. Flach is correct that having initials after your name doesn't necessarily give you tax superpowers. That's just as true, by the way, of having a $64.25 IRS-issued preparer ID number or of passing some Accenture-run tax Trivial Pursuit "competency exam." But it's quite possible that someone with "CPA" after their name is the best pro for you.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to