A business tax is an amount of money that a company pays to the government. The tax professional performs a tax audit upon the return filed by a taxpayer. Tax professionals can help determine what tax services, credits and deductions are available and how much these deductions and credits are worth. Read through the article for some key information about business tax professionals.
According to the IRS, to qualify as a business tax professional, the Taxpayer must know the laws, regulations and administrative procedures relating to Federal taxes. That implies that the Taxpayer must be at least a qualified tax preparer or enrolled agent.
The preparation of taxes by a person who isn’t trained or qualified to perform tax returns, such as an individual who prepares individual income tax returns, is considered preparation by an unauthorized representative.
The Taxpayer must have at least a current certification from the National Association of Enrolled Agents (NAEA) or the National Taxpayer Advocate (NTA). This certification includes passing an exam. After passing this exam, the Taxpayer can apply for enrollment in an enrolled agent organization.
- National Enrolled Agents Certification: This certification is handled by the National Association of Enrolled Agents (NAEA). The NAEA offers the most comprehensive certification available to the public. This organization works directly with the IRS to ensure the best standards and criteria are met to ensure their tax professionals provide the best service possible.
- National Taxpayer Advocate (NTA): The NTA is an IRS-approved organization that’s known for its exceptional exam. Passing this exam demonstrates that a taxpayer has expertise in preparing taxes and handling complex tax law issues.
NAEA recommends that taxpayers have at least 12 years of experience in their field before going into business tax prep (i.e., eight years of working experience, then four years of private study). It ensures that the Taxpayer is adequately prepared before they open their business tax prep firm.
According to the IRS, an individual certified by either the National Taxpayer Advocate or the National Association of Enrolled Agents must have a Bachelor’s degree or higher (or its foreign equivalent) in a relevant field. Taxpayers who wish to become an Enrolled Agent must take the Enrolled Agent Examination. The IRS states that this exam is designed to test their knowledge of current tax law, facts and practices in the tax field.
The Taxpayer should be familiar with any billable specialties that are incidental or adjoined with their primary field of work (for example, education, medical or vocational). A Taxpayer who maintains a full-time practice as an Enrolled Agent must keep up to date with changes in tax laws by participating in continuing education courses. NAEA states that Enrolled Agents must meet the minimum continuing professional education (CPE) requirements to maintain their certificate.
The IRS states that enrolled agents are required to notify their clients if they’re engaged in the service of preparing returns under a fee arrangement. If a taxpayer doesn’t tell their client how much they will pay to have their returns prepared, this is considered a conflict of interest and may result in the client receiving a bill for more than they would normally be charged.
The IRS states: “A fee arrangement is a method of charging for services that give a taxpayer an incentive to overstate the amount of tax due on their return to get their accounts paid earlier, even though this amounts to a substantial underpayment of tax. It’s also referred to as a purported refund anticipation loan (PRAL) or underpayment scheme.”
The IRS states that there are two types of Enrolled Agent agreements:
1. Fee Agreements
All enrolled agents must charge a set fee for preparing each tax return for their clients. These fees are referred to as Net Rate Fees (NRF) and Form 1098 should be issued by the Taxpayer to the enrolled agent each year. The form provides a breakdown of how much has been paid to the enrolled agent, how much has been deducted from the refund and how much is owed in taxes.
2. Mark-Up Agreements
This agreement has the enrolled agent get a larger fee than what is prescribed in the NRF and then work out a mark-up with their client. The result of this agreement is that the client could end up owing more in taxes than if they had used an NRF.
NAEA states that enrolled agents are subject to a complete practice review every 3 years. The NAEA monitors the enrolled agents and makes sure that they’re meeting all of their requirements in providing the highest level of service to each Taxpayer they work with. If a taxpayer is found to be providing unsatisfactory service or acting unethically, NAEA will take action to make sure it’s corrected immediately.
To maintain a satisfactory level of service, the Taxpayer must provide documentation that proves to their federal auditor that they’re maintaining certain requirements. These requirements include the following:
- Notifying the IRS that you plan to be working in this area for more than 5 years. The least amount of tax withheld from your client’s check is above what you would expect to earn working in this area for 5 years. If you don’t meet this requirement, you will be suspended from practicing until you prove otherwise. You should also report any withheld income taxes to the IRS when they’re received.
- The amount of your net profit or loss, including salaries, commissions and other expenses related to your practice. You may reduce the amounts you report if you deduct certain expenses. This deduction is based on what you believe you would earn in the area over 5 years. If your total expenses are greater than you had previously reported, this is a substantial understatement of tax liability (SUTL). You may be penalized by the IRS and suspended from practicing until the matter has been settled.
- You should also maintain a complete daily record of your business transactions. If a tax professional stays out of compliance with IRS laws, they may be suspended from practicing until they can prove otherwise.
The IRS states that enrolled agents should be familiar with their publication series and source them whenever necessary. If a Taxpayer doesn’t have access to the required publications, the Taxpayer must notify the IRS and an alternative method of obtaining these publications.
A Taxpayer should keep in mind that any tax law changes or revisions will become available approximately 6 years after the publication date. A Taxpayer should use the IRS Electronic Products Directory (EPD) to locate the correct edition of any tax law, statute, treaty or administrative ruling needed for their work.
Associations may provide excellent resources on tax law rules, self-assessments and continuing education information, including a list of accredited providers. They can’t provide tax advice and it’s up to the Taxpayer to check their facts.
Shared responsibility agreements require enrolled agents to file a Form 1045 with the IRS and each client to disclose any potential conflicts of interest. The IRS states that if an enrolled agent has any concerns about their services, they should notify their client. If a Taxpayer is unsure of what constitutes a conflict of interest, they should file Form 1045 and let the IRS do their due diligence on the situation.
The IRS states that an Enrolled Agent may conduct personal tax planning and preparation to prepare federal and state income tax returns with the client’s consent. Still, they may only prepare their return if they’re certified by DGTRC. Taxpayers should be aware that the regulations define “technical advice” as the ability of an enrolled agent to explain in detail how the Internal Revenue Code of 1954 has been interpreted or is being administered at any given time. If a Taxpayer receives technical advice, they should be aware that the advice is based on technical standards and must follow the guidance provided.
Taxpayers will want to ensure that they’re receiving assistance from an enrolled agent who has received training in tax law and complies with unclaimed property laws. Taxpayers can identify such people by visiting the DGTRC Website for a list of qualified tax preparing firms. The IRS also will accept assistance from any person as long as that person has been certified by DGTRC.
Other Benefits (Honorarium, Meeting Expenses, Possible Tax Deductions)
- The IRS is the only government agency that provides an honorarium for personal appearance to provide education on tax issues.
- Taxpayers can deduct qualified expenses if they choose to attend a seminar or workshop sponsored by the IRS or if they travel more than 25 miles from their home to attend a seminar.
- A Taxpayer may also be entitled to a tax deduction for travel expenses if the Taxpayer attends a tax education program sponsored by the IRS.
Nesso Tax – Offering Trustworthy Tax Services In Connecticut
Taxpayer rights and responsibilities are very important. Enrolled agents have a duty to be honest, provide good quality of service, and represent only their clients’ interests. At Nesso Tax, we provide the individual attention required for proper tax preparation and education. Moreover, as part of the Nesso Group, we also guide our clients in other areas like accounting, insurance, Medicare, wealth and benefits. Everyday, we help individuals and businesses thrive.