Enrolled Agents Explained
Enrolled Agents (EAs) are federally-licensed tax practitioners who have demonstrated technical competence in tax law and are the only taxpayer representatives licensed by the United States government.
Enrolled agents’ expertise in the continually changing field of taxation, enables them to effectively represent taxpayers at all administrative levels within the Internal Revenue Service.
As authorized by the United States Department of Treasury’s Circular 230 regulations, EAs are granted unlimited practice rights to represent taxpayers before IRS and are authorized to advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements.
History of Enrolled Agents
After the Civil War, many citizens had problems settling claims with the government for horses and other property confiscated for use in the war effort. After many petitions and much pleading, Congress, in 1884, endowed enrolled agents with the power of advocacy to prepare claims against the government and to seek equitable justice for the citizenry.
For many years, the purpose of the enrolled agent was to act in this capacity. In 1913, when the income tax was passed, the job of the enrolled agent was expanded to include claims for monetary relief for citizens whose taxes had become inequitable.
As the income tax, estate, gift and other sources of tax collections became more complex, the role of the enrolled agent increased to include the preparation of the many tax forms that were required. Additionally, as audits became more prevalent, their role evolved into taxpayer advocacy and negotiating with the Internal Revenue Service on behalf of their clients.
In 1972, EAs united to form a national association to represent the needs and interests of EAs and the rights of taxpayers.
That association is today called the National Association of Enrolled Agents (NAEA). Through their national association and state affiliates, enrolled agents have successfully defended their rights to practice and furthered the passage of legislation and administrative rules that benefit both tax practitioners and ordinary citizens.
Client Privilege and the Enrolled Agent
The IRS Restructuring and Reform Act of 1998 provides federally-authorized practitioners (those bound by the Department of Treasury’s Circular 230 regulations) with a limited client privilege. This privilege allows confidentiality between the taxpayer and the enrolled agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. This privilege does not apply to state tax matters, although a number of states have an accountant-client privilege.
In addition to the stringent testing and application process, the IRS requires enrolled agents to complete 72 hours of continuing education every three years in order to maintain their active enrolled agent license and practice rights.
Members of the National Association of Enrolled Agents
NAEA members are held to a higher standard than the IRS’ minimum 72 hour continuing education requirement. NAEA members must complete 30 hours of IRS-approved continuing education hours each year (which would lead to a total of 90 hours for each three-year EA enrollment cycle period). Because of the expertise necessary to become an enrolled agent and the requirements to maintain the license, there are only about 53,700 practicing enrolled agents.
The Enrolled Agent VS CPA VS Tax Attorney
A certified public accountant (CPA) is an expert in accounting designed to attest financial records. Tax matters are one of many specialties of CPAs. An Enrolled Agents (EA) is specifically skilled in all areas of tax law.
A tax attorney is a tax law specialist and can represent a client in a court of law. Not all tax attorneys deal with the IRS. Enrolled agents can represent you in out of court issues. If you find yourself in a difficult tax situation, enrolled agents can represent you before the IRS, but only a tax attorney can represent you in court.
When choosing between a CPA and EA, it may be helpful to know about the requirements involved in their particular professions.
How Does One Become a CPA?
An individual on the path to becoming a certified public accountant, a CPA must first earn either a BS or a BA preferably in accounting, business administration or management. Every state has a specific number of credit hours that must be earned before a CPA candidate sit for the exam. Because CPAs can only practice in the state in which they are licensed, they must first pick a state to become licensed. The exam is the same regardless of the state chosen. The exam will consist of four sections and 1000 questions. After passing the exam, aspiring CPAs are required to meet apprenticeship requirements by working under another CPA or CPA firm.
THE FOUR SECTIONS OF A CPA EXAMINATION COVER:
As you can see, the CPA exam covers much more than tax laws. CPAs are not considered to be tax experts, simply because their span of knowledge is much broader than tax matters. If you would like to see a list of topics covered on each part of the CPA exam click here.
How Does One Become an EA?
There are two pathways to becoming an EA. One path involves past experience working for the IRS in an applied tax law and technical tax matter-related role for 5 years. After meeting the requirements, the Enrolled agent licensed is earned. The other option entails demonstrating special competence in all tax matters by passing a tax compliance check, comprehensive background check and a three part exam. The exams do not test tax form preparation. Therefore, prior knowledge of tax form preparation is not necessary. In fact, an EA may never prepare a tax return. Enrolled agents are tax law and tax matters specialists. Enrolled agents must know all of the ins and outs of the +70,000 word tax code.