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An Enrolled Agent (EA) is a tax professional who just might be able to save you from terrible financial trouble. They are licensed professionals who go to bat for taxpayers who face asset forfeiture, are undergoing audits, or who want to file appeals for various decisions of the Internal Revenue Service. Specifically, those with this certification, similar to a certified public accountant, can represent taxpayers before the Internal Revenus Service. Enrolled agent status has a long history that dates back to the end of the Civil War. Since then, it has become a bona fide career with the benefits of technical experience, federal oversight of the practice, governmental oversight, and even their own publications. In fact, enrolled agent certification is the highest credential the Internal Revenue Service (IRS) offers.
Though not quite at the level of a CPA or a lawyer, EAs are able to offer a broad scope of services to their clients. Also, unlike a certified public accountant, these agents do not need approval from a state board and they do not need state licenses; their professional certification is accepted throughout the nation. Outside of standard tax prep, you and your client will also enjoy client-EA confidentiality. Thus, when you are representing a taxpayer in a matter involving an audit or Internal Revenue Service collections, you can discuss the content of those filings with protected confidence and security.
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What is an Enrolled Agent?
After the Civil War, many citizens made false claims regarding wartime losses. Agents were in high demand and would represent these loss claims, often for their own financial gain. For example, their old mare may have suddenly transformed into a thoroughbred stud with a high market value. The agents sought to inflate the losses since they were paid on a percentage, or commission, basis. When the legislature saw that there were more horse-related claims than there were actual horses, they passed a law.
The Enabling Act of 1884, popularly known as the Horse Act, was signed into law by Chester A. Arthur to establish representation for claimants. This law sought to certify and regulate the nefarious con men that were acting as representatives. The statute codified background checks, insisted on references, ensured professional conduct, etc. The goal was to ensure that agents were of upstanding moral character. Once an experienced tax professional satisfied the education requirement and experience requirement, they were distinguished as an enrolled preparer, or Enrolled Agents, and could fill the growing need for tax payer representation at the federal level.
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In 1913, the federal government began implementing an income tax on citizens of the United States. Woodrow Wilson signed this into law when he ratified the 16th Amendment to the Constitution. Along with this, citizens received greater protections from Enrolled Agents. Whenever citizens felt that the taxation was unsustainable, they could work with an Enrolled Agent to seek relief. The Horse Act was passing the time period when it was useful.
Since the tax code was new, and quite complex, the role of the EA designation expanded to include tax-filing preparation. When the IRS (Internal Revenue Service) began increasing its auditing practices, the EA role expanded even more. Thus the role needed more oversight and regulation from current and former irs employee(s). The Treasury Circular 230 was written to replace the Horse Act. That document aggregated all EA-specific statutes and defined who may become an EA, eligibility requirements, the application process, licensure renewal procedures, regulations for tax preparation, and continuing education for licensed EAs.
These days, the profession is still available to nearly anyone. No special education is required. However, all licensed EAs must pass a very difficult two-day, special enrollment examination and tend to do better with previous employment and work experience in the field. In fact, many enrolled agents were a former IRS employee at some point. The IRS oversees the enrolled agent exam through a company called Prometric that likely offers a testing center near you, and fewer than 33% of test takers pass all three parts of the enrolled agent exam. In 1994, the initials E.A. were officially recognized by the Treasury Department. Learn more on how to become an enrolled agent (EA) and the requirements needed below.
Duties and Obligations of EAs
A licensed enrolled agent (EA) has many duties and responsibilities, both to their clients and to the Internal Revenue Service. Failure to comply with rules can result in suspension, disbarment, or other penalties. Conceivably, criminal charges could be filed in extreme circumstances. However, you will enjoy a long and fruitful career and nearly unlimited earning potential in the private sector if you maintain an honorable practice.
When becoming an enrolled agent you will have several obligations and one of the first obligations is to the IRS. If the agency requests documentation from you, you must comply with the request or order for documents. When you receive such a request, you should scrutinize it and determine that it follows tax law and that the requested documents do not violate your client-EA confidentiality. After all, while it is important to be in compliance with the IRS, it's also important to fulfill on any contractual agreements you have with your client. Not only are you required to submit any lawfully requested documentation, but you must also be available to testify before the IRS.
As you work with a client, it is your duty to inform them of various statutes and rules. For instance, if you see that they may be omitting certain information from their paperwork when you file it, you must let them know that their action will carry consequences. Failure to properly inform your client may result in negative consequences for both you and your client. These types of due diligence are required throughout your practice.
You will also need to perform rigorous diligence in the rest of your practice. Each and every fact and figure, whether delivered to you in oral or written form must be verified when you prepare a filing. This will ensure that there are no inadvertent accidents that might harm your client. Such diligence will also enable you to inform your client of any omissions or other inaccuracies. Even if you are handed work from other accountants or EAs, you must verify that they are a reliable source for that work before you sign off on it.
To best serve your clients, you must always be diligent to avoid any conflicts of interest. A conflict might arise when you are representing friends, family members, or business associates. Your practice may also be compromised by a client who overpays you if they are doing so to coerce you into providing results that most benefit them. Keep in mind that you do have responsibilities to yourself and the client, but the tax codes and applicable laws are paramount.
Scope of Practice
When you become an enrolled agent, you are able to determine how you want to define your practice. You might focus on certain industries or demographics, for instance. Some have a policy to only work on specific sorts of audits, or tax returns that involve certain amounts. That is, you could choose to represent non-profit organizations or help low-income individuals complete their tax returns.
Some EAs work primarily with very small limited liability corporations (LLCs) that employ freelance and contract workers. You could also choose to work with partnerships or help people structure their estate. Since EAs frequently have greater knowledge of taxation than CPAs, you might partner with CPAs or attorneys whose clients need your specialized skill. When you become an enrolled agent and begin to represent clients you will need to not only understand the different scopes, but will also need to comprehend proper representation practices and procedures.
- Trusts and estates
Trusts and estates are often structured to limit tax law exposure. Ultimately, the best interests of the beneficiary must be attended to. As an EA, you should be able to assess the trustor/trustee relationship and assure that the final beneficiary receives the maximum benefit from the trust or estate.
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If you wish to specialize in this sort of taxation, you will need to be familiar with certain terms and concepts that include, but are not limited to:
- All deductible items
- Tax Return for Estates and Trusts – Form 1041
- Trust fraud
- Income from interest and investments
- Filing requirements for trusts and beneficiaries
- Blind trusts
- Living trusts
- Irrevocable trusts
- Dynasty trusts
- Credit shelters
- Personal residence trusts
- Exempt organizations
There are organizations that are not required to pay income taxes. However, they must still comply with certain rules and regulations to attain, and maintain, that status. For the most part, these are 501(c)(3) organizations, commonly known as nonprofit organizations. These might include churches and charities. They can take on many different forms, including charitable trust accounts, and complex corporate structures that perform many different sorts of tasks and receive funds from many sources.
It's important to know the difference between non-profits and federally exempt organizations. A non-profit is established at the state level only. Such an organization might be free from state income taxes, property taxes, or other state-levied fees. To incorporate a non-profit, an individual or organization only needs to apply for enrollment with their Secretary of State and receive permission to operate in this manner.
A federally exempt organization, on the other hand, is often a non-profit that has applied for federal tax exemption. They operate under the 501(c)(3) status of the Internal Revenue Service code. As an EA, you might specialize in this sort of tax status.
Exempt organizations often rely on donations to keep afloat. These donations must be accounted for in the companies financial information. Many donors will want to receive tax vouchers for their donations, since they will expect to deduct these from their tax payments. Other organizations might receive funds in return for services or goods provided. As an EA, you will be expected to use required information to show how these payments comply with IRS codes so that your client can maintain its exempt status.
If you represent an exempt organization, you will need to know about the following forms:
- Form 1023 – how your client applies for 501(c)(3) status under the IRS codes
- Form 1024 – how your client applies for recognition of exemption under section 501(a) of the tax code
- Annual 990 – the annual tax filing your client must make to help ensure continued exempt status
- Retirement plans
Some businesses provide ways for their employees to save for their retirement. These accounts may include instruments such as a 401(k) investment plan or some sorts of IRA savings plan. These plans offer limited tax incentives and, as such, have many requirements and restrictions that govern both the employees’ and business entities contributions.
When you are a licensed EA, you must have a mastery over the following:
- Employee retirement contributions
- Form 5500 – report on employee benefit plans
- Retirement plans for self-employed people
- Unlawful transactions
- Lawful retirement plans
- Rules governing non-discrimination in retirement plans
Farmers have special status with the IRS. All EAs will be tested on this area of taxation during the licensing process. Farmers are considered people or organizations that grow field crops, maintain orchards or vineyards, or who raise cattle or other livestock. You should be particularly interested if you live in a rural, agrarian area. Even if you are not in a rural area, you might find small-scale farms in urban or suburban areas. These farmers will need help with their tax issues and being versed in this area will provide another level of job security.
If you have farmer clients, you must know about the various subsidies, deductions, and incentives the IRS makes available to them.
The IRS code applies to, but is not limited to, the following:
- Depreciation, depletion, and amortization
- Disaster provisions
- Farm assets
- Farm income
- Farm tax
- Forming corporations
EAs may also be involved in the formation of new corporations. After all, a corporation is formed as a result of its underlying tax structure. You must know how to assess the profit/loss statements from your corporate client and understand all the applicable deductions it can take from taxable income each tax season. You will need to know all the filing requirements for corporations, as well as how they are created and funded.
Your EA exam, and practice will require that you study and have a comprehensive knowledge of the following:
- Compensation in the form of stock certificates
- IRS code 351 exchange
- Transfer of mortgaged real property
- Transferring and receiving money and property
- Closely held corporations
- Personal service corporations
Corporations are legal entities that protect their owners from liability. Board members and shareholders can reap the rewards of profit while being shielded from any debts incurred by the organization.
To pass all the EA special exam, you must have intimate knowledge of IRS Publication 542, including these relevant topics:
- Investment income and expenses
- Property depreciation
- Sales and other dispositions of assets
- Accounting periods
- Business expenses
- Excise taxes
- Distinguishing s-corporations, LLCs, and personal service corporations
- Employee owners
Where do Enrolled Agent's Work?
EAs work in a variety of environments. While many work in a corporate or government environment, others are in the field. There are EAs who work independently as sole proprietors or in entry level positions under the umbrella of an LLC.
Some possible work environments include:
- Accounting firms
- Law firms
- Corporations – in-house accounting departments
- Investment banking
- State or municipal revenue departments
- Private practice
- Performing audits in the field
If you choose private practice, you have the opportunity to do a variety of work. You could consult for your local town's revenue department; help individuals with their filings, structure trusts and estates alongside an attorney, or work with a variety of small corporations and LLCs.
Enrollment Agent Job Description
As a federally licensed professional, you will have some rather heavy responsibilities to fulfill. Enrolled agents will need to be diligent in your professional practice so that you maintain your licensure as well as your public reputation as an effective EA.
- Client Privilege, Confidentiality, and Conflict
As an EA, you will enjoy client confidentiality in certain circumstances. These are limited to audits and IRS collections. For tax preparation filings, your communications may be subject to public scrutiny or be part of the discovery process, if you or your client is named in a lawsuit.
You are responsible for performing due diligence in all matters. You should verify that all facts and statements you receive from oral or written communication is true and valid. When you are working with a client on any sort of matter, you should inform them that they must not omit any details pertinent to their tax filling, audit, or collections process.
EAs are also responsible for avoiding conflicts of interest. For that reason, you should not work with family members or friends, if that relationship impugns your ability to perform your lawfully sanctioned duties. When you take on a client, you should perform diligence to ensure that your work for them will not harm another current, or former, client.
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- Representation to USTC
The U.S. Tax Court is a special court wherein your client can appeal an IRS tax law decision. While normally, only a member of the US Bar association, an attorney, can represent a client in court, this court allows EAs to represent their clients. However, you will need to become a USTC Practitioner. The USTC Practitioner's Service administers an exam every two years. If you pass all parts of the exam, you can represent your clients in this court.
The test covers the following knowledge areas:
- Tax court conduct
- Practices and procedures of the court
- Federal taxation
- Rules of evidence
- Legal ethics
Before you sit for the EA exam, you should know that the test has a 5-10 percent pass rate.
- Preparer Tax Identification Number (PTIN)
Before you start preparing tax filings for individuals or organizations, you will need a PTIN. This is a relatively new protocol instituted by the Internal Revenue Service to ensure a degree of consistency and reliability in the tax preparing industry. The IRS states that all EAs providing tax preparation must have a PTIN.
Steps to Become an Enrolled Agent
There are three routes to attaining, or maintaining, your EA licensure: testing, experience, or fees and CPE. This is part of the hours of continuing education that is required by the IRS.
- Testing - Enrolled Agent Exam
The steps to becoming an EA are relatively simple. According to the IRS, they are:
- Obtain a PTIN
- Apply to take the Special Enrollment Examination
- Review for the SEE
- Pass all three parts of the SEE
- Pay all enrollment feesli>
- Pass a tax compliance check to ensure that your taxes are current and paid.
To obtain a PTIN, you must create an account with the IRS. This will include previous tax returns, personal identification information, pass a suitability check and contact information. Once your information is submitted, you can apply for a PTIN. You will need to account for any past legal or taxation troubles. Once all of your information is accepted, you will receive your PTIN.
Taking the SEE is not quite as straightforward or easy. The pass rate for all three parts of the exam is somewhere around 33 percent.
The enrolled agents examination covers three areas with 100 questions covering these general areas:
- Individual taxes
- Business taxation
- Practices and procedures related to tax matters, including ethics
The IRS will allow anyone to apply to take the examination, and there are no educational requirements. However, it's advised that you have significant experience with taxation, tax prep and tax returns. You will also be subject to a background check and your application may be denied if your background does not instill confidence in the IRS. These are the steps you will need to accomplish to becoming an enrolled agent.
Once you are accepted to take the SEE, you can contact your nearest Prometric testing center to schedule convenient test times. They schedule times for the EA exam between May and February. If you do not pass one part of the test, you must wait to schedule a re-take until the next testing period begins. After you pass one part of the test, you will have two years to pass the remaining two sections.
IRS agents who have worked with the agency for five continuous years are eligible to receive an EA license. If you are working as an IRS agent, or desire this route, you will need to apply for enrollment licensing. The application will ask for proof of your experience with, and knowledge of, the tax code. Essentially, you will need to show that you have knowledge equal to or greater than what is required to pass the SEE.
- Fees and CPE
To maintain your EA license, you are required to take 72 hours of Continuing Professional Education credits every three years, including 16 hours per year minimum. The IRS must approve your education provider. The IRS.gov website provides a link to an abbreviated list of approved CPE providers. You might use one of those or attend appropriate courses at your local accredited college or university. Professional organizations or associations may also be recognized as valid CPE providers. To ensure that your credits will count towards your CPE hours, look for the IRS Approved Continuing Education Provider logo.
You should make sure that you keep accurate and complete records of your CPE hours. You must also pay all renewal fees for both your EA licensure and your PTIN.
Qualities of an EA
EAs are a sort of accountant, so you will need to be detail oriented, diligent, and highly analytical. You will need to be comfortable spending long hours analyzing spreadsheets and assessing financial documentation. On the other hand, if your practice focuses on individual tax filings, you will need to have good listening and interviewing skills. That is, you may need to elicit hard financial facts using indirect methods. Many of your clients will not be aware of your professional jargon so you will need to translate your needs so that they understand.
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As you proceed through your career, it will be vital to join one or more professional associations. These groups have much to offer. You will find many opportunities for professional networking, CPE opportunities, and conferences where you can fellowship with your fellow tax professionals. The following list is for national associations. Keep in mind that your state may have chapters related to any of these. The NAEA in particular is known to have affiliated chapters in most states.
- Tax court conduct
- Practices and procedures of the court
- Federal taxation
- Rules of evidence
- Legal ethics