We hope that you never encounter tax trouble, but some circumstances call for professional help. If you have multiple incomes, rental real estate, or a recent inheritance, chances are your tax return is too complex to complete alone. Maybe you already tried to complete a difficult return, made a mistake by accident, and now find yourself in need of tax resolution services. However you got here, use this article to learn what is an enrolled agent, how they different from other professional tax preparers, how to find an enrolled agent, and what you stand to gain by hiring one.
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What is an Enrolled Agent?
The IRS considers attorneys, Certified Public Accountants (CPAs), and enrolled agents as registered tax practitioners. According to Circular 230 – a publication by the U.S. Treasury Department detailing the rules governing practice before the IRS – licensed practitioners can:
- Prepare or file tax returns, submit documents (such as Form 1040-E and its accompanying paperwork), or advise the taxpayer for preparation and submission.
- Provide a client with written advice on one or more Federal matters.
- Communicate with the IRS on behalf of the taxpayer regarding his or her rights, privileges, or liabilities under laws and regulations administered by the IRS.
Represent a taxpayer at conferences, hearings, or meetings with the IRS.
More specifically, enrolled agents are federally-authorized tax practitioners who may act on behalf of taxpayers before the IRS when it comes to audits, appeals, and collections. Circular 230 regulations grant enrolled agents unlimited practice rights in all matters except for Tax Court, where an attorney must be present. Unlimited practice rights means that an IRS enrolled agent is unrestricted to which types of taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before. As such, enrolled agents can work with individuals, partnerships, corporations, estates, trusts, and any other entity with tax-reporting requirements. Unlike CPAs or attorneys, IRS enrolled agents always specialize in taxation. Accounting and law firms, banks and private practices, are just a few examples of where enrolled agents are needed.
Contrary to common misconception, an enrolled agent is not actually an IRS employee. The IRS has many career fields, but an enrolled agent tax preparer is not one of them. Enrolled agents are federally licensed, but they are not federally employed. Alternatively, most enrolled agents either work as self-employed independent contractors or at accounting firms. The enrolled agent profession dates back to 1884, after questionable claims had been presented following Civil War losses. Congress recognized a need to regulate individuals representing citizens dealing with the U.S. Treasury, and responded by passing the Enabling Act (also known as the Horse Act). Horses were the number one reason for the act, as more horses were claimed than were actually lost during the war – and they were seemingly all thoroughbreds or show horses. Congress was overwhelmed by the amount of dubious claims they received: row boats turned into yachts, pot metal was actually disguised silver, and so on.
They recognized that it wasn’t the individual owner who was making these claims, it was the person who represented them. These agents would seek people who might have a claim – right or wrong – and represent them for a percentage of what they could get from the government. President Arthur Chester signed the Enabling Act to give Congress the authority to regulate these representors. A standard was created, which included testing, moral character, background checks, and criminal records. Those who passed the requirements became enrolled agents.
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Enrolled Agent (EA) vs. CPA
When it comes to finding professional tax services, the amount of options can become dizzying. Learning the differences and defining characteristics of each profession helps taxpayers make the most informed decision regarding who they hire for representation. The most common decision is choosing an enrolled agent versus a CPA. The terms “bookkeeper,” “accountant,” and “CPA” are often used interchangeably, and the profession has many similarities as an enrolled agent. CPAs are known for performing tax, accounting and financial services to businesses and individuals. However, not all specialize in taxation, and some specialize in more than one service. CPAs are licensed by the States, not the federal government. This is significant because if an enrolled agent loses their license, there’s nowhere to go; their career is over. However, if a CPA or attorney loses their license to practice in a particular state, they can always hop across the border and work in a state in which they have not been disbarred. Becoming a Certified Public Accountant gives those in accounting a competitive edge, as they had to have attended college, passed the Uniform CPA Examination, and meet the requirements established by their respective state’s board of accountancy. An enrolled agent tax preparer goes through much more extensive training than that of a CPA. To achieve a distinguished enrolled agent status, one must:
- Obtain a Preparer Tax Identification Number (PTIN)
- Apply to take the Special Enrollment Examination (SEE) – a comprehensive exam that requires demonstration of proficiency in Internal Revenue code – and pass all three parts
- Apply for enrollment and pay for the enrollment fee
- Pass a compliance check to ensure they have filed all necessary tax returns and have no outstanding liabilities
- Renew their PTIN each enrollment cycle
- Maintain their status by completing the mandatory hours of continuing education (72 hours every 3 years, a minimum of 16 per year) using an approved provider by the IRS
So, how do you choose between an IRS enrolled agent vs. a CPA? CPAs are appropriate choices when a little accounting guidance wouldn’t hurt. If you own a small business, a CPA can assist with bookkeeping to get you organized and on track. They can also perform an audit of your business deductions, expenses, and income to attest that your statements to the IRS are truthful. In addition to ensuring tax compliance, a CPA might offer management services such as budgeting and financial planning. However, keep in mind that only enrolled agents are required to abide by the provisions of Circular 230, and that members of the National Association of Enrolled Agents (NAEA) are bound by a code of ethics and rules whereas CPAs are not. You should choose an enrolled agent tax preparer if:
- You have out-of-state returns. Enrolled agents are licensed to work anywhere, but CPAs are licensed by individual states. If you need to file a tax return in more than one state, and eventually need representation before that state in an audit or resolution case, only an enrolled agent can do so.
- You don’t have the resources for a tax attorney. Those who can’t afford to pursue an attorney will often hire an enrolled agent instead for civil resolution cases. Their rates tend to be much more affordable, and their tax law expertise is equally efficient.
- You have an IRS dispute. If you have trouble with the IRS, your enrolled agent can help you find the best, most cost-effective strategy to deal with your unique circumstance. Common situations that benefit from the council of an IRS enrolled agent include: failure to file and failure to pay tax penalties, debt relief, tax evasion, tax liens, tax levies, tax fraud, IRS audits and investigations.
- You need a resolution for your tax-related concern. Enrolled agents are trained to deal with complex tax problems, and can find a solution to your situation in a number of different ways. The following are various examples that an enrolled agent can negotiate with the IRS on your behalf: penalty abatement, payment plans, offer in compromise, innocent spouse relief, back taxes, and more.
Whichever tax professional you decide to use, always check to ensure they are licensed first, or risk being scammed by someone on the internet promising “tax relief services”. Communication is paramount, so make sure to hire someone who can answer your questions in ways you understand. It’s also critical that whoever you hire puts a guarantee on their work, meaning they will represent you later before the IRS pro bono if an issue arises on your tax return.
How to Find an Enrolled Agent
Aside from doing a simple online search, there are several other ways you can find an IRS enrolled agent. Consult your local Yellow Pages and look under the headings for “enrolled agent” and “tax preparation”; you’re also likely to see these such companies feature their services on commercial advertisements – especially around tax season. To find an enrolled agent over the phone, call the NAEA toll-free at (800)424-4339 to access their 24/7 referral service. You can also contact the NAEA by mail if you write to 1120 Connecticut Avenue, NW, Suite 460, Washington, DC 20036.
Your best option, however, is to take advantage of the professional services we offer at Community Tax. Our trusted team of enrolled agents will fight the IRS on behalf of your taxpayer rights. We have a commitment to customer satisfaction – no matter what it takes – and decades of combined experience to tackle even the most complicated tax situations. We specialize in solving all of your tax-related needs, whether it’s about planning for the future or settling the past. Contact us today and see why Community Tax has become the leading national provider of tax-based services.