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What Is an Enrolled Agent (EA)?

Corey —  October 18, 2010 — 3 Comments

What Is an Enrolled Agent (EA)?       After hemmin’ and hawin’ about it for a while, I finally signed up to take the exams to become an Enrolled Agent. I’m excited about it (and a bit nervous), but I’m guessing most of you have no idea what I’m talking about. That’s because I didn’t even know what an Enrolled Agent was until I had a couple years of experience doing taxes and working as a financial planner. So here’s a basic overview of what an Enrolled Agent is and why I decided to become one.

What Is an Enrolled Agent (EA)?

       An Enrolled Agent is a person who has been authorized to represent taxpayers (without the taxpayer’s presence) before all administrative levels of the Internal Revenue Service (IRS) for audits, collections, and appeals. They aren’t restricted on which taxpayers they can represent and what types of tax matters they can handle.

How Is an Enrolled Agent Different from Other Tax Preparers?

       Until 2011, Enrolled Agents are the only tax preparers required to demonstrate their competence in tax matters to the IRS. (This is changing – see my note in the section below on why I decided to become an EA.) Attorneys and CPAs may or may not specialize in taxes, but all EAs specialize in taxation. They’re also required to fulfill continuing education requirements by law – at least 72 hours every three years. While CPAs have continuing education requirements for their license, the courses EAs take must be related to Federal tax laws. CPAs often take courses on a variety of topics not related to taxes.

       Unlike other tax preparers, Enrolled Agents (along with CPAs and attorneys) can represent taxpayers before the IRS even if they didn’t prepare their return. This is important because these other tax preparers can’t represent a taxpayer before appeals officers, revenue officers, or IRS Counsel. A tax preparer must be an Enrolled Agent, CPA, or attorney to do that. Also, an unenrolled tax preparer cannot execute claims for refund, receive refund checks, execute consents to extend the statutory period for assessment or collection, execute closing agreements, or execute waivers of restriction on assessment or collection of a deficiency in tax.

How Do You Become an Enrolled Agent?

       There are two ways to become an Enrolled Agent. You can pass a three part exam (called the SEE or Special Enrollment Examination). The three parts cover individual taxes, business & other entity taxes, and representation, practices, and procedures. Each part of the exam contains 100 questions. It’s a very comprehensive and difficult exam. Here’s a list of the documents the IRS recommends reviewing before taking the exam.

       The other way to become an Enrolled Agent is to work for the IRS for five years in a position that regularly required you to interpret and apply the tax code and its regulations. Regardless of which method you choose (exam or IRS work experience), you have to undergo a thorough background check on both your criminal history and your personal tax filing history. You can be sure you’ll be denied if you didn’t file, didn’t pay your taxes, or filed a fraudulent return. (You’d think they would have run this kind of check on Timothy Geithner before Obama nominated him to become the Secretary of the Treasury!)

Why I Decided to Become an Enrolled Agent

       I have three main reasons I decided to become an EA. Here they are:

  1. Provide Better, Higher Quality Service – I didn’t want to be in a position where I couldn’t represent my tax clients if they had an issue with the IRS that involved appeals or collections. Becoming an EA ensures that I can help my clients no matter what tax issue comes up. (Except for going to court – you need an attorney for that.)
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  3. Strengthen My Tax Knowledge – Taking the Enrolled Agent exams requires you to carefully study all aspects of Federal taxes. I’m familiar with most individual tax issues and some business, trust, and estate issues, but there’s still quite a bit that I’m not 100% comfortable with. Passing the exam won’t magically make me an expert, but it, along with the continuing education requirements, will ensure that I have a more complete and deeper knowledge of Federal taxes.
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  5. Upcoming IRS Requirements for Tax Preparers – Starting in 2011, the IRS is going to require all paid tax preparers (except EAs, CPAs, and attorneys) to register, pass a knowledge examination, and complete continuing education. The test likely won’t be as difficult as the EA exam, and the continuing education requirements aren’t as stringent either. But these tax preparers will still be limited in which taxpayers and tax matters they can represent before the IRS. It seemed to me that it would be better to just become an EA in the long run.

       Obviously, I’m not doing it for the marketing advantage as I’ll probably spend the rest of my professional life explaining what an EA is. But that’s OK with me because I know it’s valuable and will help my clients.

       Well, now you know what an EA is. What do you think? Sound like it was a good thing for me to pursue?

photo credit: (Alan Cleaver on Flickr)