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Why Become an Enrolled Agent?
Accountants have the option to earn various certifications, but few are as valuable as that of an enrolled agent (EA). This certification is the highest tax professional credential that the IRS recognizes. These tax professionals have unlimited practice rights. This means they can represent any taxpayer and any sort of tax issue before the IRS. The certification is valid in all states as the IRS is a federal agency.
A CPA offers more services than an enrolled agent. However, when the accountant is also an enrolled agent, they can command even higher salaries than those CPAs without this designation. Because it takes less time to become an enrolled agent than a CPA, some professionals may decide to receive enrolled agent certification while still preparing for the CPA exam or to earn EA certification without bothering to gain their CPA.
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What is an Enrolled Agent?
The Internal Revenue Service (IRS) describes enrolled agents as those who have “earned the privilege of representing taxpayers before the IRS” by passing a three-part comprehensive enrolled agent test, offered by the IRS and covering individual and business tax returns. Enrolled agents prepare taxes and deal with the IRS when clients are audited. They may represent clients concerning collections and appeals. However, enrolled agents require government licensure from the IRS before they can begin to practice.
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What Does an Enrolled Agent Do?
Enrolled agents work with clients on tax issues dealing with the IRS. The agent acts on the client’s behalf with the IRS. That includes coming to an agreement with the government regarding payments or a payment plan, as well as any settlements. The agent may also negotiate with the IRS regarding tax estimations.
Being an enrolled agent gives you access to a complicated practice. Agents must have an in-depth knowledge of IRS requirements, documentation, and paperwork. The ability to meet all necessary deadlines is critical.
Other duties include:
- Receiving disbursements for tax payment remittance
- Federal, state, and local tax preparation
- Computing amounts and impact of company tax decisions
- Strategizing to limit tax liability
- Examining various tax consequences based on different financial courses of action
- Preparing reports on the company’s best options for tax purposes
While most enrolled agents work in offices, there are some who spend much of their time in the field at the place of business or home of the taxpayer they are representing.
Education Requirements to Become an Enrolled Agent
Although most candidates will have a degree in accounting or a similar field, there are no specific educational requirements to sit for the exam and gain this credential. However, the exam is going to be nearly impossible to complete unless you already have a degree or extensive experience in the field. To become an enrolled agent, the candidate must pass a criminal background check along with a suitability check. The latter includes tax compliance, ensuring the candidate has no outstanding tax liabilities. The candidate must also obtain a Personal Tax Identification Number, which they can do once they pass the test and background check. A candidate with at least five years’ experience working for the IRS may receive enrolled agent status without taking the exam.
The Special Enrollment Examination concentrates on the IRS Code and its application to various types of taxpayers.
The three subjects in the exam include:
- Individuals: This is focused on income, retirement income, real and personal property, deductions and credits, specialized returns such as the estate tax, inheritance tax or gift tax.
- Businesses: This subject focuses on business entities and considerations, partnerships, corporations, S corporations, business income, assets, expenses, deductions, credits, financial record analysis, exempt organizations.
- Representation, Practices, and Procedures: This subject focuses on practicing before the IRS, enrolled agent requirements, sanctions, rules and penalties, building the taxpayer’s case, power of attorney, legal authority and references, types of representation, and completion of the filing process.
There are three parts to the exam: Individuals; Businesses; and Representation, Practices, and Procedures. They may be taken in any order. Candidates must pass all three sections within two years to apply for enrollment, though completion was temporarily extended to three years due to the pandemic. Each section consists of 100 questions. These include three types of multiple choice questions. Those are direct questions, sentence completion, and “all of the following” with an exception.
The time limit for each section is 3.5 hours and there is an additional 15-minute break. Examinations are closed book with no notes nor electronic devices permitted. At the end of the test, the computer will indicate whether the candidate has passed or failed the exam.
The testing window runs from May 1 to the end of February. Tests are unavailable in March and April. The candidate may take each test section up to four times during that period. There is no requirement to take all three sections at one time.
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How is the Enrolled Agent Exam Scored?
The scaled passing score is 105. The IRS determined scoring methodology after conducting a scoring study. Experts consisting of IRS representatives and enrolled agents establish the passing score for candidates. The exam results are scaled by calculating the number of correctly answered questions from the total number of questions. That number is then converted to a scale ranging between 40 and 130. The IRS has not revealed the extra formula for this conversion.
If the person taking the exam passes, they are not given their actual score, only a statement that they have passed the exam. However, those who fail the exam are given their score. The IRS notes that failing candidates are given their scores so they can see how close they were to passing. There is a huge difference between someone failing the exam by one or two points and someone scoring a 45. They are also provided with information that can help them prepare for their next attempt at taking the exam.
EA Exam Study Resources and Preparation
You can expect to spend approximately 50 hours studying each for every exam section. That boils down to between 10 and 15 hours weekly. There are plenty of study resources and practice tests available to help you succeed in passing. The IRS has various publications useful in studying for the examination. These include the Internal Revenue Code, Treasury Department Circular 230, IRS publications, and IRS tax forms and the instructions accompanying them. Circular 230, current and prior year versions of IRS publications, forms, and instructions are available online at www.irs.gov/Forms-&-Pubs.
The National Society of Accountants (NSA) also has tips available for passing the Enrolled Agent exam. One sample: Know the various formats for the tax calculation by heart.
The National Association of Enrolled Agents (NAEA) offers a prep exam in conjunction with Surgent EA Review. Personalized study programs are created for each candidate. One advantage is its ReadySCORE™ feature. This mimics actual Enrolled Agent exam scoring, allowing candidates to determine how they perform in each test section as their studies progress. ReadySCORE™ helps the candidate know when they are ready to take the exam. Prometric, the company charged with conducting the exam at its centers, also offers some study information.
Many private companies sell study guides for the enrolled agent exam. The format varies, and may include video lectures, unlimited practice exams, and adaptive learning technology. These guides are available for the complete exam or individual sections.
The enrolled agent exam is not that difficult if the candidate is well-prepared, especially if they already have experience in tax preparation. The three phases of the exam vary in difficulty. For most participants, the second section on Businesses is the most challenging. This section has the fewest passing scores, with approximately 60% achieving a passing score on their first attempt. The third section, Representation, Practices, and Procedures, is the easiest, with a more than 90% pass rate. The first section, Individuals, falls in between these two with roughly 75% of candidates passing on their initial go.
If you do not pass the exam on the initial try, you can take it again. Many people may not pass one or more sections, and there is a two-year window for an opportunity to take these sections again.
The current cost of the exam is $181.94 per part or $545.82 for all three sections. The fees are nonrefundable. Prometric, the testing center in charge of providing testing for the exam, accepts all major credit cards. Various study guides are marketed by those planning to take the enrolled agent exam. The cost of such guides ranges from free to $700 or more. Keep in mind that free guides are very basic, and you may want to pay for a study guide if you are at all uncertain of your ability to pass any part of the exam.
Enrolled agents are also required to take continuing education courses in order to maintain their certification. The IRS mandates 72 hours of continuing education every three years, which will also come with costs. Every enrolled agent must take at least 16 hours of continuing education annually. Enrolled agents must also pay to keep their licenses renewed regularly.
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Career & Salary
Where Might You Work?
Enrolled agents are generally employed by businesses specializing in tax return preparation or the handling of income tax disputes. Unlike seasonal employees of tax preparation businesses, enrolled agents are usually employed year-round. Of course, many enrolled agents work for accounting firms. However, enrolled agents can work anywhere their services are necessary. Some work for the government, while others are employed by high-net-worth individuals. Banks, non-profit organizations, law firms, and investment companies may all hire enrolled agents. Enrolled agents may even operate their own tax preparation businesses, where they will help clients with their needs on a first-come, first-served basis.
In 2019, the median pay for a tax examiner, collector, or revenue agent, categories under which enrolled agents fall according to the Bureau of Labor Statistics (BLS), is $54,890 per year. However, senior enrolled agents can make considerably more. It is these senior agents who can earn more than accountants and even certified public accountants (CPAs). The median annual pay for a general accountant is $71,000.
The demand for enrolled agents and tax examiners overall is expected to decline by 4% by the end of the decade. As of 2019, there were an estimated 57,600 such positions. That number is expected to drop by 2,400 by 2029. Much of the decline depends on potential changes to federal, state, and local government budgets in the coming years.
The states with the highest level of employment in the tax examiner, collector, or revenue agent field are:
- New York
The annual mean wage in these states range from $71,000 in New York to $46,500 in Florida, so location can play a big role in earnings.
Enrolled agent certification can open doors for various career paths. However, some of these positions require at least a bachelor’s degree, which is not necessary to become an enrolled agent.
- Accounting and Auditing Clerks: Accounting and auditing clerks produce financial records for companies and organizations. The job includes checking the accuracy of financial records. A degree is not needed, but some college is usually required. The median pay is $41,000.
- Financial Examiner: This position involves ensuring financial institutions and transactions are complying with internal and external regulations. The median pay is $81,000.
- Tax Examiner: This job with the IRS involves reviewing tax returns for accuracy and completeness, reviewing and coding tax returns for computer processing, resolving errors, and corresponding with taxpayers to obtain any missing information. The average pay is similar to that of an enrolled agent at about $55,000.