Tuesday, June 25, 2013


The process of becoming a Certified Public Accountant (CPA) is a difficult one.  While the specific requirements vary slightly from state to state, in general in order to become a CPA one must meet an education requirement (have a bachelor’s degree with a minimum number of credits in accounting subjects) and an experience requirement (“apprentice” with a CPA firm), must pass a difficult 4-part exam (Taxation and Business Law, Audit, Business Concept and Environment, and Financial Accounting and Reporting), and must maintain a minimum number of hours of continuing professional education (CPE) each year.  A person who receives the designation CPA has certainly accomplished a difficult feat and should be congratulated.

Being granted the designation CPA allows one to certify financial statements.  CPAs are also permitted to “practice” (represent taxpayers) before the Internal Revenue Service.   

The CPA exam is a test of one’s ability to prepare, audit, and certify financial statements.  I have recently been told by a CPA candidate that 20% of the questions on one of the four parts of the exam deal with “individual income taxes”.  So 5% (20% x 25%) of the CPA exam deals with 1040 issues.  Passing the CPA exam does not provide any material indication of one’s ability to prepare 1040s.

A CPA must take up to 40 hours of CPE each year.  None of the 40 hours must be in federal individual income tax topics (“No specific subject areas are required”).  Merely having the initials CPA after one’s name is no indication that the person remains current in 1040 taxation.  

A CPA is not automatically a 1040 expert.  Having the initials CPA after one’s name by itself is absolutely no indication that the person is competent or current in 1040 preparation.

The Enrolled Agent (EA) Special Enrollment Examination is a 3-part (Individual, Business, and Representation, Practice and Procedures) test of one’s ability to prepare federal income tax returns and one’s ability to represent taxpayers before proceedings of the Internal Revenue Service.  The Registered Tax Return Preparer competency exam was a test of one’s ability to prepare federal individual income tax returns (“the completion of Form 1040 series returns including basic related schedules and forms”).  Passing either the Special Enrollment Examination or the RTRP competency test does provide an indication of one’s ability to prepare 1040s.

An EA must take 72 hours of CPE every 3 years, with an annual minimum of 16 hours, in federal taxation or federal tax related matters, such as accounting, tax preparation software or ethics.  An RTRP was required to take 15 hours of CPE each year, which include 2 hours of ethics, 3 hours of federal tax law updates, and 10 hours of other federal tax law.  Having the initials EA or (for now) RTRP after one’s name is a clear indication that the person remains current in 1040 taxation. 

Many CPAs are trained and experienced, and extremely competent and current in 1040 preparation.  But it has absolutely nothing to do with the initials CPA.  It is because of the specific education, training, and experience of the individual.  A CPA is not automatically a 1040 expert, but a specific CPA may be a 1040 expert.

If a CPA were able to earn the designation of RTRP it would clearly identify that individual CPA as being competent and current in 1040 preparation.

And BTW, surveys have proven that the fees for preparation of series 1040 tax returns charged by CPAs are much higher than the fees charged by EAs and “previously unenrolled” preparers.

‘Nuff said. 


1 comment:

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