What is the difference between a bookkeeper, an accountant, a CPA, an enrolled agent and a tax preparer, and which one does my business actually need?

Which of these titles are credentials, and which can anyone use?

Two of the five titles are credentials: an authority grants them, keeps a register and can discipline the holder. The other three describe work.

The IRS guide to preparer credentials says CPAs are licensed by state boards of accountancy, the District of Columbia and U.S. territories. The IRS page on choosing a tax professional says anyone can be a paid tax return preparer as long as they have an IRS Preparer Tax Identification Number (PTIN).

Whether "accountant" is restricted is a state question. California's Accountancy Act, for example, reserves the CPA title to those it authorizes and to registered firms (Business and Professions Code section 5055) and bars titles such as certified, licensed, registered, enrolled or chartered accountant, and any other likely to be confused with certified public accountant or public accountant (section 5058). Section 5051 says a person is not practicing public accountancy if their only services are bookkeeping for clients, preparing or signing tax returns and a few similar services, and they do not seek clients using the CPA or public accountant designation. Read your own state's act for the titles it reserves. Behind a descriptive title, the only qualification you can check is a certification the person holds separately.

What does each credential take to earn and keep, and who disciplines the holder?

Enrolled agent. The IRS enrolled agent information page says the status is earned either by passing a three-part IRS test covering individual and business tax returns or through experience as a former IRS employee, and that enrolled agents must adhere to ethical standards and complete 72 hours of continuing education every three years. The IRS guide to preparer credentials adds that enrolled agents are subject to a suitability check.

CPA. The IRS guide to preparer credentials says CPAs have passed the Uniform CPA Examination, studied accounting at a college or university, met their board's experience and good-character requirements, and must meet ethical and continuing-education requirements to keep an active license. The details are state law.

Discipline before the IRS. The IRS Office of Professional Responsibility page says Circular 230 governs practice before the IRS by setting mandatory conduct rules for tax professionals, mainly attorneys, CPAs and enrolled agents, with sanctions that include censure, suspension, disbarment and monetary penalties.

Annual Filing Season Program. The IRS program page says it aims to recognize non-credentialed return preparers, who can earn its record with 18 hours of continuing education, including a six-hour federal tax law refresher course with test, plus a renewed PTIN and consent to obligations in Circular 230.

Who can represent your business before the IRS?

Representation means acting for your business with the IRS in an examination, a collection matter or an appeal. The IRS instructions for Form 2848 say the form authorizes an individual to represent you, and that the person must be eligible to practice before the IRS.

IRS Tax Topic 254 gives the first row. The IRS Annual Filing Season Program page and the Form 2848 instructions give the second, and the IRS guide to preparer credentials gives the third.

The limited-practice rule, 31 CFR 10.7, lets a regular full-time employee represent an individual employer, a general partner or regular full-time employee represent a partnership, and a bona fide officer or regular full-time employee represent a corporation, association or organized group, provided the individual presents satisfactory identification and proof of authority. Someone under suspension or disbarment cannot use it, and the IRS may, after notice and a chance for a conference, deny it to anyone whose conduct would justify a sanction. So a bookkeeper on your own full-time payroll may be able to deal with the IRS for you; an outside bookkeeper cannot on that basis, however capable. If an outsider only needs to see your IRS information, the Form 2848 instructions point to Form 8821, which authorizes inspecting or receiving it without representation.

What changes when a notice, examination or dispute is already open?

Representation rights, not bookkeeping skill, now decide who may act for you. The IRS page on understanding a notice or letter says that if the IRS asks you to respond, act by the due date, and that if you disagree, you should follow the notice's instructions and reply by the due date to guarantee your appeal rights. Hiring does not pause that date, so start all three of these today, side by side:

• Note the due date and plan to meet it yourselves if no representative is in place in time; an officer, general partner or qualifying full-time employee can present the response.
• Engage a representative whose rights reach where the matter may go: an Annual Filing Season Program record holder only for an examination of a return they prepared and signed, and an enrolled agent, CPA or attorney for collections, appeals or anything else. The Form 2848 instructions say an Annual Filing Season Program representative cannot execute closing agreements, extend the time to assess or collect tax, execute waivers or refund claims, or sign any document for you, and must hold a valid, active PTIN; if any of these may be needed, engage an enrolled agent, CPA or attorney.
• Check the representative's credential with its register and confirm it is active, not merely listed, then check the IRS Office of Professional Responsibility's records of disciplined practitioners, as described below, before signing Form 2848 naming them.

What does it take to sign your return as a paid preparer?

The IRS PTIN requirements page says anyone who prepares or assists in preparing federal tax returns for compensation must have a valid PTIN before preparing returns; PTINs are renewed by year, so check your preparer's is current. The IRS guide to preparer credentials treats a PTIN holder with nothing more as having no professional credentials.

Treasury's regulation 26 CFR 1.6695-1 requires the signing preparer of a return that is not signed electronically to sign it after it is completed and before it is presented to you for signature; for an electronically signed return, the preparer need not sign before presenting you a completed copy. The same regulation penalizes a signing preparer who fails to give you a copy of the return, or to show the required preparer identifying number on it before presenting it for your signature. IRS Tax Topic 254 says the paid preparer is primarily responsible for the return's overall substantive accuracy, yet you remain ultimately accountable for every item on it. State registration, where your state has it, comes on top.

Which reports can only a licensed CPA issue?

The AICPA's Accounting and Review Services Committee issues the standards (SSARSs) for preparation, compilation and review engagements. Those standards set out a ladder:

• Preparation. Under AR-C section 70, the engagement does not require a determination of whether the accountant is independent of your business.
• Compilation. AR-C section 80 says a compilation is not an assurance engagement.
• Review. Under AR-C section 90, the accountant must be independent of your business and gives limited assurance.

Who may perform and report on these engagements is state law. California's Accountancy Act, for example, counts preparing or certifying reports on audits or examinations of books and records, including for obtaining credit, as the practice of public accountancy (section 5051), and bars anyone from practicing public accountancy in California without a board permit or practice privilege, apart from exceptions section 5050 lists. Read your state's act for which reports it reserves, including whether a compilation report is among them.

What if a lender or investor will rely on the statements?

Ask the recipient first, in writing, which level it will accept (audit, review or compilation), under which accounting framework, and whether the accountant must be licensed in a particular state. Its answer, not your preference or who can prepare the numbers, sets the minimum role. What a lender's request for reviewed or audited statements means is a separate question.

Where do the roles overlap?

Most recurring work needs no credential, and several of these roles may lawfully do it:

• Books and internal statements. Under California's rule above, a non-CPA who does not seek clients as a CPA or public accountant may keep books and prepare statements for clients there as part of bookkeeping operations.
• Tax returns. Any PTIN holder may prepare them, with state registration where required. The IRS guide to preparer credentials says some CPAs specialize in tax preparation and planning.

Beyond the PTIN and any state preparer registration, a credential is legally required in two places: representation beyond the limited-practice rules, and reports your state reserves. Hiring a CPA for routine recording buys permissions the work does not use.

Which role does each of your needs require?

Run your own list down the first column. The second column is the least-credentialed role the law allows; whether a given person is competent is a separate check.

How does the work divide when you use more than one?

When your needs span several rows, give each piece to someone permitted to do it, and write down who owns each deadline:

• Bookkeeper. The bookkeeper keeps the records and produces the statements the returns are prepared from. If they need to see IRS notices or transcripts, a Form 8821 authorization gives access without representation.
• Preparer. An enrolled agent, CPA or other PTIN holder, with state registration where required, prepares and signs the returns, and you still answer for every item on them.
• Representative. An enrolled agent, CPA or attorney holds your Form 2848 for any matter that may go beyond an examination, and this can be the preparer.
• CPA firm for reports. A CPA firm is engaged only when a recipient requires a review or audit, or a compilation your state or the recipient reserves to a licensed firm. Because AR-C section 90 requires independence, ask the firm before engaging it whether other work it does for you, such as bookkeeping, affects that.

How do you check that a credential is real and current?

Check with the authority that holds the register, and reach it through the authority's own site, not through a link, certificate or screenshot the person sends:

• Enrolled agent. The IRS Annual Filing Season Program page says the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications lists all attorneys, CPAs, enrolled agents, enrolled retirement plan agents and enrolled actuaries with a valid PTIN, plus Annual Filing Season Program record holders. The IRS page on verifying an enrolled agent says to submit a request through the Office of Enrollment contact form.
• CPA. Use the board of the state that licensed the CPA. The California Board of Accountancy's license lookup page warns that finding no result for an out-of-state CPA does not mean the CPA is unauthorized in California, so check the home state's board; that license alone does not show the California practice privilege. Because the IRS directory lists only those with a valid PTIN, a CPA's absence from it proves nothing.
• Attorney. The IRS guide to preparer credentials says attorneys are licensed by state courts or their designees, such as the state bar, so check there.
• State-registered preparer. In California, the California Tax Education Council's search works by name, business name, city, ZIP code or CTEC ID number.
• Any representative. Confirm the license or enrollment is active, not merely listed. The IRS Office of Professional Responsibility page says that office has exclusive authority over tax practitioner discipline and links records of disciplined practitioners; check them before signing Form 2848, because discipline for practice before the IRS is imposed there, not by a state board.
• Private certification. Ask the body that issued it.

Records change, so check again before each new engagement.

What if your business, or your CPA, is in more than one state?

CPA licensure and the right to practice are set state by state, so run these steps for every state involved:

1. List the states where the business is based and operates, and where the CPA and the firm are licensed.
2. Find the board of accountancy for each state on that list.
3. Confirm the CPA's license with the board of the state that issued it.
4. Read your own state's rules on out-of-state CPAs and firms; California's, below, show what to look for.
5. Check whether your state or the preparer's state requires tax preparer registration.

The California Board of Accountancy's license lookup page says a CPA whose principal place of business is outside California and who holds a valid, current license from another state may, with limited exceptions, practice in California without a California license. The CPA must meet one of three conditions: at least four of the last 10 years practicing continually as a CPA in another state, a home state the board lists as substantially equivalent, or individual qualifications the board finds substantially equivalent. Some events require the board's approval first, or require stopping California practice until the board permits, and some conditions can lead to revocation. Ask the CPA which condition they meet and whether any such event applies.

The same page says an out-of-state firm must first register with the board to perform, for a California-headquartered business, an audit or review, an examination of prospective financial information, or a compilation a third party is or might reasonably be expected to use whose report does not disclose a lack of independence.

What do other certifications, badges and firm descriptions signify?

Place each against the statutory credentials:

• Annual Filing Season Program record. It is IRS-issued and brings the limited representation shown above, but the IRS program page describes participants as non-credentialed.
• Bookkeeping certifications. The American Institute of Professional Bookkeepers' undated certification page says its Certified Bookkeeper designation requires passing a four-part national exam, signing its code of ethics and submitting evidence of bookkeeping experience. It signals tested knowledge and grants no legal permission.
• Software certifications. Intuit's undated ProAdvisor certification page presents QuickBooks certification as mastery of its products, kept by passing a short recertification exam every year. Intuit presents it as product knowledge; it grants no permission to do regulated work.
• Firm descriptions. The California Board of Accountancy's lookup page describes licensed accounting firms as those meeting minimum registration requirements to provide public accounting services in California, and section 5055 lets no firm but a registered one use the CPA title. Words such as "tax service", "accounting solutions" or "CPA-led" are descriptions, so verify the firm and the individual who will sign.
• Membership badges. A badge shows that someone joined an association, not that an authority licensed them.

Why is a credential only the starting point?

A credential shows that its holder cleared an entry bar and keeps up continuing education and conduct rules. It does not show experience with your industry, entity type or software, or capacity at your deadlines. IRS Tax Topic 254 also tells taxpayers to consider whether the individual or firm will be around for months or years after filing to answer questions about the return. Weigh these alongside the credential; vetting a particular candidate is a separate question.