Enrolled agents (EAs) are federally licensed tax specialists who know tax code and representative competency is demonstrated in one of two ways: Either by passing a comprehensive three-part exam known as the Special Enrollment Examination (SEE), or can represent taxpayers before the Internal Revenue Service. Unique to enrolled agents, as they compare to all other tax professionals, is the fact that they are required to demonstrate their understanding of tax code to the IRS. This masteryby having five years of experience in an IRS job that requires the regular interpretation of tax code as part of its daily functions.
The federal license that all EAs are required to hold is also unique among tax professionals. This license grants EAs the ability to operate free from the jurisdictional practice limitations that affect state-licensed professions. As stated by the practice laws detailed in Treasury Department Circular No. 230: Regulations Governing the Practice of Enrolled Agents, Certified Public Accountants, Attorneys, Enrolled Retirement Plan Agents, Enrolled Actuaries and Appraisers before the Internal Revenue Service: Unlike CPAs and tax attorneys who are limited to practicing only within the state or jurisdiction that has licensed them, enrolled agents are federally licensed, allowing them the privilege of representing any taxpayer on any tax issue before any IRS office.
Congress actually created the enrolled agent (EA) designation in 1884 after the Civil War, when many citizens had claims against the government for property confiscated during the war. At that time enrolled agents were given the power to prepare claims and represent citizens. When Congress passed the income tax law in 1913, congress expanded the duties of EAs to include tax representation.
Enrolled agents are detail-oriented people who revel in the complexity of ever changing tax laws, but who also enjoy working closely with the clients they represent. Although there aren’t specified educational standards required of those interested in testing for the EA professional designation, many enrolled agents are, in fact, accountants or have professional backgrounds in finance.
According to the National Association of Enrolled Agents (NAEA), there are currently more than 40,000 EAs operating in the U.S. or abroad with expatriated U.S. citizens.
Enrolled Agent Duties, Obligations and Conduct
Treasury Department Circular 230 describes three categories of professional duties for Enrolled Agents:
- Personal duties: Enrolled Agents must meet their own business and personal tax obligations and are held to standards of professional conduct when interacting with clients and the IRS.
- Duties to clients: Enrolled Agents are expected to maintain due diligence and take reasonable steps to satisfy all legal requirements when giving advice to clients. EAs must also avoid conflicts of interest that might arise from unreasonable levels of compensation or from representing family members.
- Duties to the tax administration system: Enrolled Agents must act promptly on pending cases and honor IRS standards and protocol when giving tax advice.
These rules of conduct apply to enrolled agents when performing all professional functions including providing personalized tax planning advice, representing taxpayers in an audit, and preparing tax returns for any entity that must file one, including individuals, partnerships, corporations, trusts, and estates.
Scope of Practice and Specialization within the EA Designation
Some EAs offer a wide range of services, while others specialize and limit their practice to representing only certain client demographics, specific entities, or preparing only certain types of tax returns. An EA may choose to:
- Work only with individuals and prepare personal income tax returns. This may involve choosing to work only with high net worth individuals, or perhaps choosing to represent only those with low income.
- Work with small businesses in a specific industry or industries, for example, choosing to work only with home-based businesses or medical practices.
- Work with businesses with a certain tax structure, such as partnerships or LLCs.
- Work with corporations to prepare corporate tax returns.
- Work with estates and trusts, dealing with their unique tax obligations.
Since enrolled agents can represent any taxpayer before the IRS, not only those for whom they have prepared returns, some EAs actually choose not to prepare tax returns at all. Instead they may opt only to offer representation and tax collection and consulting services such as those associated with representing a taxpayer before the IRS during an audit. Representing a taxpayer and practicing before the IRS includes:
- Preparing documents and filing them with the IRS.
- Communicating with the IRS on behalf of a taxpayer about the taxpayer’s rights, privileges, or liabilities under the tax code.
- Attending meetings, conferences, or hearings with the IRS on the taxpayer’s behalf.
- Advising the taxpayer and acting on the taxpayer’s behalf.
Enrolled Agent Careers
The EA designation is held by professionals of all kinds who deal with matters related to taxation, and in every setting that requires a person knowledgeable of the tax code who can practice before the IRS. Professionals with the EA designation are found working in:
- Public accounting firms and CPA firms
- Corporate accounting departments
- Investment firms
- Law firms
- State departments of revenue
- Private practice, as many EAs are self-employed tax professionals who operate small tax preparation, accounting, and/or bookkeeping businesses
Client Privileges and Confidentiality
Since congress passed the IRS Restructuring and Reform Act of 1998, enrolled agents have had certain limited client privileges akin to those of attorneys. Chief among these is the legal right of confidentiality between taxpayers and their representative enrolled agents with cases involving IRS audits and attempts by the IRS to collect back taxes.
What this privilege means is that enrolled agents cannot be compelled to reveal any information to the IRS or other authorities that was shared in confidence between the tax payer and EA concerning the audit or collection. Of course, this confidentiality privilege does not apply to state tax matters or when preparing and filing tax returns, as by their very nature these require full disclosure.
United States Tax Court (USTC)
If a taxpayer is not satisfied with an IRS decision, the taxpayer has the right to take the issue to tax court where a judge will decide the matter. Typically, only attorneys can represent a person in court; however, other Circular 230 professionals, including enrolled agents, can take the tax court exam and qualify to represent taxpayers.
The USTC Practitioner’s Service offers this exam once every two years. The four-hour exam tests a tax professional’s understanding of tax court rules of conduct, practice and procedure, as well as their knowledge of federal taxation, acceptable types of evidence, and legal ethics. According to USTC Practitioner’s Services, only five to ten percent of the people who take this exam pass it.
Preparer Tax Identification Number (PTIN)
Enrolled agents who prepare tax returns, along with all other tax preparers, are required to have a Preparer Tax Identification Number (PTIN). The new PTIN rules are an attempt by the IRS to regulate the tax preparation industry, which historically has been largely unregulated.
To get a PTIN, tax preparers need to create an account at the IRS Tax Professional PTIN Sign-up System, fill out the application, and pay a fee. That process takes about 15 minutes. Alternately, tax preparers can mail a completed Form W-12 with the fee, which takes four to six weeks to be processed and mailed back to the applicant.
The new IRS regulations also require testing and continuing education for some tax preparers. However, enrolled agents, along with CPAs and tax attorneys, are exempt from the IRS’ PTIN testing and continuing education requirements because these professions already have their own testing and CPE requirements.
Becoming an Enrolled Agent: Testing
The IRS Office of Professional Responsibility, which licenses and oversees EAs is responsible for determining eligibility through the Special Enrollment Examination (SEE). Testing-in is the most common way of demonstrating comprehensive knowledge of the tax code and becoming an enrolled agent. This exam has three separate components, all of which must be passed:
- Individual taxes
- Business (corporations, partnerships, estates, and trusts) taxes
- Representation, practices, and procedures (including ethics) related to all tax matters
Although there aren’t any minimum educational or experiential requirements to be eligible to sit for the exam, the National Association of Enrolled Agents recommends that applicants have some tax preparation experience. While anyone can take the test, the IRS enrolled agent application process requires a background check. The IRS may deny enrollment if the background check turns up information the IRS feels reveals the potential for inappropriate conduct. This includes certain criminal activities or failure to pay taxes properly.
Applicants can prepare for the exam through any combination of self-study, correspondence courses, or even one or two-day long exam prep crash courses.
To take the SEE, a person must contact Prometric, which is the testing service the IRS Office of Professional Responsibility contracts to administer the exam. The three separate computer-based components of the exam can be scheduled at the applicants’ convenience anytime between May and February, as testing is not available at the peak of tax season in the months of March and April. Each component consist of about 100 questions, all are formatted as one of three different types of multiple-choice question:
- Incomplete sentence
- Direct question
- All of the following apply other than
Test takers are spared having to wait for exam results and are actually able to find out if they passed or failed before leaving the testing center.
An applicant who fails a specific exam component four times during the May through February testing period will not be allowed to take that particular component again until the next testing period begins the following February. After passing one exam component, applicants have up to two years to pass the other two components.
After passing all three components of the SEE, EA applicants must apply for enrollment and pass a background check that includes a review (not an audit) of tax returns prepared in the three years prior to applying. After submitting the application, known as Form 23, accepted applicants can expect to receive their enrollment cards within 120 days.
Becoming an Enrolled Agent: Experience
Experienced employees of the IRS look forward to getting EA designations as they approach the five-year mark in their careers with the IRS. With five years of continuous experience as an IRS employee that routinely interpreted tax code, IRS agents and appeals officers can apply to become enrolled agents without taking the Special Enrollment Examination.
The application requires these experienced agents and officers to detail work experience that shows they possess enough knowledge of the tax code to pass the SEE. Applications should also include information about education, training, licenses, and work experience (other than with the IRS) that would likely affect approval of the application. Becoming an enrolled agent by experience also requires a background check.
Fees and Continued Professional Education for EA License Renewal
Enrolled Agents must renew their enrollment every three years. The renewal schedule is based on the last digit of the enrolled agent’s Social Security or tax identification number.
Now that enrolled agents are required to have a Preparer Tax Identification Number (PTIN), some of the administrative tasks involved in managing EAs have been rolled into the PTIN process.
Renewal requires completing 72 hours of Continuing Professional Education during each three-year renewal period, including six hours of ethics courses. Continuing education must be gained through a qualifying program designed to improve the EA’s professional knowledge of federal taxation or federal tax-related matters. The IRS defines qualifying programs as:
- Formal education classes that require attendance, and that are conducted by qualified instructors, discussion leaders, or speakers, and that provide or require a written outline, textbook, or suitable electronic educational materials
- Correspondence or individual study programs that require registration, measure completion of the program (such as with an exam), and provide or require a written outline, textbook, or suitable electronic educational materials.
The IRS also allows limited CPE credits to be obtained by serving an instructor, speaker, or discussion leader during a presentation or by publishing a book, article, or similar material specific to taxation or the role of EAs.
The continuing education must also be taken through a qualifying sponsor. The IRS defines qualifying sponsors as:
- Accredited educational institutions
- Recognized professional organizations or societies
- Organizations that any state’s licensing board recognizes for continuing education purposes
- Organizations that filed sponsor agreements for approval by the Director of the IRS Office of Professional Responsibility
Tax work is often associated with number-crunching, and enrolled agents certainly must be comfortable with numbers and basic accounting concepts. However, people skills are also essential to working successfully both with clients and with IRS representatives. According to the National Association of Enrolled Agents, other qualities of successful enrolled agents include finding the field of taxation rewarding, along with the ability to understand complex issues while continually adjusting to changes in tax laws.
The National Association of Enrolled Agents (NAEA) is the only national association that represents EAs exclusively. NAEA has chapters in many states, and offers many professional development and educational opportunities that satisfy continued professional education requirements. NAEA participates in activities, such as IRS panels, commissions, or meetings and Congressional legislative advocacy to promote the general interests of taxpayers and the specific interests of enrolled agents.
Other, more general, associations for tax preparers and professionals, that count enrolled agents among their members include: