An Enrolled Agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled Agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
Enrolled Agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before.
Source: Internal Revenue Service Website
Enrolled Agent’s license comes from the U.S. Treasury Department. So, unlike CPAs and Attonneys, they can practice nationally, without re-certifying or re-testing state-by-state.
Contibutor: Eva Rosenberg, MBA, EA
“Enrolled Agents Deserve More Respect”
The Enrolled Agent designation (EA) does not get as much respect as it deserves. Presently just about anybody can prepare tax returns for compensation (The IRS attempt to change that is currently stalled). The situation was the source of some humorous commercials
If you get audited, though, there are a limited number of people who can represent you before the IRS. In principle, it is a large number – in the 2,000,000 range. In practice, most of the roughly 1.2 million attorneys and roughly 650,000 CPAs who, in principle, could represent you at an audit are really not qualified. Especially some of the attorneys. Just kidding. On a percentage basis, you will do better with the almost 50,000 enrolled agents. Enrolled Agents earn the designation by passing an exam administered by the IRS.
Proposed Legislation on Advertising
Unlike attorneys and CPAs, enrolled agents are not licensed by states. That is the source of the problem that legislation introduced by Congressman Rob Portman is meant to address.
This bill would clarify that Enrolled Agents may use and display their credential when advertising their services and representing their clients.
Frankly the whole thing struck me as a little odd. I did not realize that there was anything preventing enrolled agents from advertising their credentials and when I went looking for the restrictions, they were not leaping out at me. I was afraid that it was going to turn out to be our fault – meaning CPAs. Someone might argue that, but it is probably not on purpose. State statutes that are meant to protect the CPA designation have, I think inadvertently, an adverse affect on the EA designation. In North Carolina, for example, if what you do is in anyway related to accounting and you are not a CPA, the only thing you can call yourself is an accountant. There are similar problems in Ohio, Georgia and New York
“Enrolled agents, who are granted a license to practice by the federal government, surprisingly are prohibited by some states from calling themselves by their federally-granted title. This state of affairs is unacceptable to these tax experts, who have demonstrated their proficiency to the very federal agency that says grace over the administration of our tax code. The few state prohibitions simply do not make sense.”
I’m all for it and I doubt that there are many CPAs who would object.
CPAs and EAs vs Everybody Else
The big advantage that you get by using a CPA or EA to do your tax return is that the same team that handles the preparation of the return can represent you if you are audited. This can be a big advantage if your return is at all complicated. For our high net worth clients, we would build the file to support the return with that in mind. In my opinion, stage one of an audit is best handled by an accountant who can get deep into the weeds of the return. That is because IRS Revenue Agents are accountants. Ticked and tied schedules with supporting documentation go a lot further than elaborate arguments at stage one of an audit. And the goal, of course, is for stage one to be the final statge.
CPAs vs EAs
Robert Flach, the Wandering Tax Pro, sometimes takes a break from pouring at his wrath on the idiots in Congress and reality TV to take a swipe at the undeserved tax reputation of CPAs. Since Bob refuses to use software, does not have any staff and, I understand, is not taking new 1040 clients, the rest of the industry does not lose a lot of sleep about his views. He does have a valid point. To become an EA you have to show you know quite a bit about federal taxes. To become a CPA you have to prove you know a bit about federal taxes but also quite a bit about a lot of other stuff. If, for the rest of your career, you focus on the other stuff, your limited stock of tax knowledge will quickly wither away. Nonetheless, there are sound reasons for a lot of tax work being with CPAs.
I spent over thirty years with essentially the same firm in an operational sense. We organized, reorganized and disorganized ourselves numerous times. In our final incarnation we were divided among audit, tax and advisory. Tax was broken down into three components corporate, entrepreneurial services and private wealth services. The breakdown stuck when we were absorbed into a national firm. In corporate and entrepreneurial services, the tax people needed to be CPAs or working their way to it.
Corporate was doing the tax compliance work for companies where the firm audited the financial statements (a very different process from IRS audits), but those guys also play a crucial role in the financial statements themselves, the tax provision, which is one of the more arcane areas of Generally Accepted Accounting Principles. In my last few months with the firm, the geriatric wing of the office was invaded by a young kid with ten years of Big 4 experience. He was always talking to people about provisions and I rarely understood any of what I overheard.
Entrepreneurial services would do reviewed and complied financial statements and the related tax returns. It would be inefficient to not integrate the tax and financial statement work. Personally, I believe the same is true of audits, but what do I know ?
It was in private wealth services that, as a regional firm we were able to make very effective use of EAs. For all practical purposes, within that area of the practice, I considered it a CPA equivalent. Another part of our practice which spun out years earlier had catered to dentists and had several EAs. A great thing about the designation is that it does not have a formal educational requirement, making it a great for people who have worked their way up from bookkeeper. I formed an impression at one point that EAs tended to be more compliance than planning oriented, but I think that may have been a peculiarity of EAs working inside CPA firms rather than independently.
National Firms Have A Better Way
National firms have devised ingenious systems to get tax returns done. The critical components are interns, first year associates and service centers located in cities in Southern Asia. Sadly, you have to have a national firm consciousness cultivated from an early age, to appreciate the way in which these systems produce better results, so I am afraid I can’t explain it to you.
Contributor: Peter J. Reilly
Source: Forbes Magazine, June 26, 2013