Bookkeepers & Taxes
There are a few key elements that clearly distinguish bookkeepers from other financial professionals, such as Certified Public Accountants (CPAs) and Enrolled Agents (EAs). One of these crucial elements is the handling of taxes. So why is it that bookkeepers and taxes often do not mix well together?
Generally, taxes can be completed by any professional that obtains a Personal Tax Identification Number, PTIN. Licensed professionals with additional capabilities such as tax advisory and tax planning are recommended for businesses that require services beyond simply submitting forms. When filing tax returns, a professional will notate their PTIN on the return. Professionals that collect payment for the preparation of tax returns have to have a PTIN.
When a professional is filing a tax return for an individual or business, they are submitting information to a federal agency on their behalf. Essentially, this is one way to “practice” before the IRS. The IRS outlines the Rules Governing Practice Before the IRS to identify the laws for tax preparers. The IRS also outlines the difference between the kinds of professionals that have the capability to file tax returns.
What separates professionals that complete tax returns are their credentials, qualifications and expertise. More commonly, Enrolled Agents, EAs, Certified Public Accountants, CPAs, and attorneys are known for being the more common professions that submit tax returns on behalf of an entity. These three professions have an ability that the IRS calls unlimited representation rights. Representation of a client is not limited to tax form matters and can include representation in events such as audits, collections or appeals as per the IRS.
Professionals with only a PTIN have something that the IRS identifies as limited representation rights. The IRS defines this as “only represent[ing] clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare the return in question.” To simplify this assuming in this example that a professional only has a PTIN with limited representation rights:
They can only represent a client that they themselves prepared and signed a return for
They can only represent that client with the outlined IRS personnel
They cannot represent clients who they have not prepared and signed returns for
They cannot represent clients for appeals or collections regardless of history
Additionally, professionals with only a PTIN most likely cannot provide services that licensed professionals are authorized to provide such as tax advise or tax planning. These services fall under unlimited representation rights.
So after reviewing IRS representation rights, why do Bookkeepers and taxes not often mix? They are not granted unlimited representation rights. When hiring the right professionals, it is important to also know what is within their scope. Despite professionals having knowledge of taxes such as Bookkeepers and Accountants without licenses, this is not enough to practice certain functions before the IRS.
Mikaesbooks collaborates with your tax professional to keep you up to date and compliant all year round. Want to learn more? Schedule your free consultation here today!
This blog is for educational purposes only. Mikaesbooks is not a tax advisor or legal professional. Seek an Enrolled Agent, EA or a Certified Public Accountant, CPA, or other tax professional for more information.
