EA vs. CPA
I’ve gotten questions about the difference between the EA (Enrolled Agent) and the CPA (Certified Public Accountant) and I’d like to answer those now.
Is an EA the same as a CPA?
The short answer to this is no. However, it really depends what characteristics you’re looking at. If you’re looking at the IRS’s view of an EA and a CPA for tax matters, then yes, they both carry the same clout. The IRS recognizes that both an EA and a CPA (as well as a tax attorney and an Enrolled Actuary) have the same authority to represent taxpayers in tax matters. There are a few things beyond that that either one can do that the other cannot. For example, a CPA can prepare and sign financial statements while an EA does not have that authority. A CPA can also perform financial statement audits and an EA cannot. So why go with an EA compared to a CPA? There’s one really good reason for this: the CPA is normally recognized by their state jurisdiction and possibly by the surrounding states as an authority in state tax matters and can represent taxpayers in those states only. An EA, with the tax authority from the federal taxation bureau (IRS), has the authority to practice in any state that does not specifically require it’s own designation. Currently, only Oregon requires that anyone representing taxpayers (be it EA or CPA or otherwise) has certification in that state above the CPA or EA requirements.
What are the similarities?
Both EA and CPA designation require standardized testing. At the time that I took and passed the EA, it was 4 sections, the same as the CPA. However, the EA only tests regarding tax and it tends to be a more rigorous test in tax matters. Since I have tested, the IRS has reduced the number of tests to three by consolidating two of the exams. The CPA covers four topics: Tax/Business Law, Business Environments and Concepts (general business information), Financial Accounting and Reporting, and Auditing. I can tell you that the CPA exam, at least the tax section, is not as difficult as the EA was in general. The other sections (which yours truly is testing in a couple of weeks) are more about general business and accounting. I have taken the tax section of the CPA and passed without studying–my overall score for that section was higher than the score that I received on the EA, showing that the CPA’s tax section is less rigorous than the EA’s.
Why would I go with one over the other?
A lot of EAs have an accounting background and are fully able to handle basic bookkeeping and tax matters. If require an audit or financial statement review or compilation, you want to go with a CPA–they can handle that component. The other answer to this is : cost. While a large CPA firm will normally charge $125-$250 and hour for representation before the IRS, most EAs that I know charge far less for the same service. The EA is also a specialist in tax and gets paid for just that. There is little else that they focus on during the year other than tax and perhaps bookkeeping. I know that when I started, I worked in taxes and joined forces with my colleague who is a certified bookkeeper. We both have our specialties and respect that each other works more in their field. In reality, most large CPAs won’t do basic bookkeeping without charging outrageous amounts for it. In that case, it might be better to go with a EA/bookkeeper combination. Another consideration is if you’ve just moved to, say, Atlanta, and you’re from California. All the sudden, California tells you that you’re being audited, meanwhile, great aunt Joan passes away and leaves you half of her estate which is in New Jersey, which comes with it’s own tax consequences. If you go to a CPA in Georgia, that CPA might not be able to work with the taxation boards in California and New Jersey. That’s where an EA comes into play–they are recognized in New Jersey, Georgia, and California and can help with all those matters.
Essentially, whether you choose and EA or CPA depends on your situation. EA is a valuable designation that can supersede a CPA in some state tax matters, which is why the EAs that I know who have gone on to get the CPA designation will continue to pay for holding the EA certification afterwards.