Tag: Tax

The Differences Between An Enrolled Agent And A Certified Public Accountant

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By Traci Rutter, EA

Enrolled Agents (EAs) are federally-licensed tax practitioners who may represent taxpayers before the IRS when it comes to collection, audits and appeals.  They are granted unlimited practice rights to represent taxpayers before the IRS and are authorized to advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trust and any entities with tax-reporting requirements.  Enrolled agents are the only federally-licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS.

Enrolled agents are required to complete 72 hours of continuing education every three years in order to maintain their active enrolled agent license and practice rights.  Enrolled agents are required to abide by the provisions of the Department of Treasury’s Circular 230, which provides regulations governing the practice of enrolled agents before the IRS.

So, what is the difference between an enrolled agent and a certified public accountant (CPA)?  A CPA can provide broad accounting, tax and financial services for businesses whereas an EA focuses specifically on taxes for businesses and individuals.  A CPAs qualifications to practice require state education, usually 150 hours of undergraduate education and pass the four-part CPA exam.  To become an enrolled agent and earn the privilege of representing taxpayers before the Internal Revenue Service, they have to pass a three-part comprehensive IRS test covering individual and business tax returns or through experience as a former IRS employee.

CPAs are equally qualified to do the work of an EA.  The main difference comes in the services each can provide.  CPAs do not focus on only one sector of accounting.  They can assist as advisors or consultants for all accounting, tax and financial services for individuals and businesses they represent.  CPAs help their clients achieve financial goals through financial planning and money management.

Both types of professionals are well-qualified, have minimum continuing education hours that need to be met yearly and have ethical code of conduct to uphold.  Which one you should consult depends largely on the issue you are trying to resolve.  While a CPA has a much wider scope of services they can provide, if you have an accounting need that needs a micro focus, working with an EA could be the perfect fit for you.

Strategic Considerations Why Private Companies Should Adopt Public Company Controls

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Often viewed as a “public company problem,” private organizations may want to consider implementation of internal controls similar to Sarbanes-Oxley (SOX) Section 404 requirements. The inherent benefits of a strong control environment may be of significant value to a private company by providing: enhanced accountability throughout the organization, reduced risk of fraud, improved processes and financial reporting, and more effective inclusion of the Board of Directors.

Private organizations, while not always smaller, often have limited resources in specialty areas, including accounting for income tax. This resource constraint—the work being done outside the core accounting team—combined with the complexity of the issues, means private companies are ideal candidates for, and can achieve significant benefit from, internal controls enhancements. Thinking beyond the present, the following are five reasons private companies may want to adopt public-company-level controls:

  1. Future Initial Public Offering (IPO) – Walk before you run! If the company believes an IPO may be in its future, it’s better to “practice” before the company is required to be SOX compliant. A phased approach to implementation can drive important changes in company culture as it prepares to become a public organization. Recently published reports analyzing IPO activity reveal that material weaknesses reported by public companies were disproportionately attributable to recent IPO companies. Making a rapid change to SOX compliance can place a heavy burden on a newly public company.
  2. Private Equity (PE) Buyer – If the possibility of the company being sold to a PE buyer exists, enhanced financial reporting controls can provide the potential buyer with an added layer of security or comfort regarding the financial position of the company. Further, if the PE firm has an exit strategy that involves an IPO, the requirement for strong internal controls may be on the horizon.
  3. Rapid Growth – Private companies that are growing rapidly, either organically or through acquisition, are susceptible to errors and fraud. The sophistication of these organizations often outpaces the skills and capacity of their support functions, including accounting, finance, and tax. Standard processes with preventive and detective controls can mitigate the risk that comes with rapid growth.
  4. Assurance for Private Investors and Banks – Many users other than public shareholders may rely on financial information. The added security and accountability of having controls in place is a benefit to these users, as the enhanced credibility may impact the cost of borrowing for the organization.
  5. Peer-focused Industries – While not all industries are peer-focused, some place significant weight on the leading practices of their peers. Further, some industries require enhanced levels of security and control. For example, utility companies, industries with sensitive customer data (financial or medical), and tech companies that handle customer data often look to their peer group for leading practices, including their control environment. When the peer group is a mix of public and private companies, the private company can benefit from keeping pace with the leading practices of their public peers.

Private companies are not immune from the intense scrutiny of numerous stakeholders over accountability and risk. Companies with a clear understanding of the inherent risks that come from negligible accounting practices demonstrate their ability to think beyond the present, and to be better prepared for future growth or change in ownership

High-Income Individuals Income Tax Return Examinations To Begin July 15

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On May 29, 2020, the Treasury Inspector General for Tax Administration (TIGTA) issued an audit report titled “High-Income Nonfilers Owing Billions of Dollars Are Not Being Worked by the Internal Revenue Service”. The report focused on high-income nonfilers and the IRS’ nonfiler strategy.  For tax years 2014 through 2016, there were 879,415 high-income nonfilers with an estimated tax due of $45.7 billion. From this group, more than one-third of cases have not been selected by the IRS for an assessment.  The report indicated that the IRS has experienced decreased resources, which is likely a contributing factor in untouched cases. 

The TIGTA audit report issued seven recommendations that the IRS has agreed, partially agreed, or disagreed to:

  • Agreement:
    • Prioritize non-filers to ensure delinquency notices are issued to all high-income nonfilers.
    • Implement controls to ensure that high-income nonfilers are not shelved.
  • Partial Agreement
    • Reallocate resources to ensure that most, if not all, high-income nonfilers are subject to enforcement action.
    • Analyze the population of high-income nonfilers for tax years 2014-2016 and issue notices.
    • Reconsider working multiple tax year cases for all high-income nonfilers.
    • Implement controls that will assist to identify and prioritize high-income nonfilers who are repeat offenders.
  • Disagreement
    • Designate a senior management official with appropriate resources and specific non-filer duties to address nonfiling, including high-income taxpayers and repeat nonfilers.

In response to the TIGTA report, a spokesperson for the IRS announced that their Global High Wealth Industry Group (a specialized group within the Large Business and International Division) will initiate several hundred return examinations of high-income individuals, starting between July 15 and September 30 of 2020. The Global High Wealth group analyzes the whole financial picture of high-income individuals. The examination process includes not only the taxpayer’s individual return but also any related pass-through entities with a heightened focus on partnerships. When examining the pass-through returns, there will be an emphasis on ensuring the taxpayer is in compliance with the new tax laws of the 2017 tax reform legislation known as the Tax Cuts and Jobs Act. Additionally, there will be a renewed focus on the examinations of private foundations.