Can a Bookkeeper Prepare Tax Returns?

Many individuals and businesses seek professional assistance during tax season. A common question is whether a bookkeeper can prepare tax returns. Understanding the distinct roles and qualifications of various financial professionals is important for accurate and compliant tax filings, helping taxpayers make informed decisions.

Understanding Bookkeeping Services

Bookkeeping focuses on the systematic recording of financial transactions. Bookkeepers maintain organized financial records for businesses or individuals, with services including recording daily transactions, managing accounts payable and receivable, reconciling bank statements, and preparing foundational financial reports like income statements and balance sheets. This work provides an accurate financial picture, supporting operational decisions and financial oversight. Bookkeeping ensures financial data is captured and categorized, establishing a solid financial foundation for internal analysis or external reporting. However, these activities are distinct from the specialized requirements of preparing and filing tax returns with tax authorities.

Requirements for Paid Tax Preparers

Any individual who prepares federal tax returns for compensation must meet specific Internal Revenue Service (IRS) requirements. A mandatory step is obtaining a Preparer Tax Identification Number (PTIN) from the IRS, which must be included on every tax return they prepare and sign. This helps the IRS track paid preparers and ensure accountability. Paid preparers are also subject to IRS due diligence requirements, particularly stringent for returns claiming refundable credits like the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), American Opportunity Tax Credit (AOTC), or the Head of Household (HOH) filing status. Preparers must make reasonable inquiries, not ignore inconsistent information, and maintain thorough records, as failure to meet these obligations can result in penalties of around $530 per failure.

Limitations for Unenrolled Preparers

Bookkeepers, unless they possess additional specific IRS credentials or professional licenses, generally fall under the category of “unenrolled preparers” for tax preparation. While an unenrolled preparer can prepare and sign federal tax returns for compensation, their authority is subject to significant limitations, particularly concerning client representation before the IRS. A valid PTIN is required for this service.

Unenrolled preparers have limited practice rights, allowing them to represent clients only before revenue agents, customer service representatives, or the Taxpayer Advocate Service during an examination of a tax return they personally prepared and signed. This limited authority does not extend to representing clients in matters before the IRS Appeals Office, in collection matters, or in tax court, nor can they execute certain documents on behalf of a taxpayer. For returns prepared after December 31, 2015, unenrolled preparers must participate in the IRS Annual Filing Season Program (AFSP) to retain these limited representation rights.

Other Tax Professionals

Beyond unenrolled preparers, other tax professionals offer broader services and representation rights. Certified Public Accountants (CPAs) are state-licensed professionals who provide a wide range of accounting services, including tax preparation, auditing, and financial planning. CPAs have unlimited rights to represent taxpayers before the IRS in all matters, including audits, collections, and appeals.

Enrolled Agents (EAs) are federally licensed by the IRS and specialize in taxation, with unlimited practice rights to represent any taxpayer before any IRS office for any tax matter. Tax Attorneys are state-licensed lawyers with a Juris Doctor (JD) degree, often specializing in tax law, who can represent clients before the IRS and in tax court, providing legal advice and handling complex tax disputes.