Bookkeepers and certified public accountants are common types of financial professionals, but they aren't the only ones. The enrolled agent (EA) title is a lesser-known title, but it is equally impressive as it is one of the highest credentials that can be obtained from the Internal Revenue Service (IRS).
Registered agents are tax professionals who have passed a rigorous Internal Revenue Service test covering every aspect of taxation. They must also pass an IRS background check. Tax professionals who have earned the EA designation are truly tax experts.
What is an Enrolled Agent?
An enrolled agent specializes in tax issues, including audits, appeals, and collections. The reason they're referred to as "enrolled" is that they have special licenses from the government. This type of relationship with the IRS is only available to enrolled agents.
Licensed by the US Department of the Treasury, enrolled agents represent taxpayers before the IRS. To become an enrolled agent, one must either pass a rigorous exam or work in a role that involves interpreting the tax code for at least five years at the IRS. An enrolled agent can assist small-business owners who need to deal directly with the IRS.
What does an enrolled agent do?
EAs, like CPAs and tax attorneys, can handle all types of tax matters and represent their clients' interests before the IRS. The client does not have to be present during the meeting. The EA can appear in the client's place.
One of the most important jobs of an enrolled agent is representing taxpayers before the IRS at every level of administration - examinations, collections, and appeals. If you have a tax problem, a notice from the IRS, or are being audited, you can hire an enrolled agent to handle direct contact with the IRS, provide information and explanations on your behalf, and contract with the IRS on your behalf.
Tax court is the only area in which an enrolled agent cannot represent you.
A limited client privilege applies to EAs under the IRS Restructuring and Reform Act of 1998. In certain circumstances, including audits and collections, the Act provides for confidentiality between the agent and their client.
How is an enrolled agent different from other tax experts?
Unlike CPAs and attorneys, who may not specialize in taxation, enrolled agents must prove their competency in every area of taxes, ethics, and representation.
Here are some of the ways in which enrolled agents differ from other tax professionals.
Individuals can become enrolled agents in one of two ways: either by working for the IRS for at least five years in a role that requires the application and interpretation of tax laws, or by passing the Special Enrollment Exam (SEE) and passing the suitability test. The IRS administers the suitability check, which includes an examination of the potential enrolled agent's personal tax history.
This exam focuses specifically on tax law, as opposed to the CPA exam, which covers a broader range of accounting and tax topics. It is divided into three parts: individuals, businesses, and representation, practices, and procedures.
Upon becoming credentialed, enrolled agents must comply with the provisions of Circular 230, which provides the regulations that govern enrolled agents' activities before the IRS.
Continuing education requirements
To maintain their active enrolled agent license and practice rights, enrolled agents must complete 72 hours of continuing education every three years, with a minimum of 16 credits each year. Topics range from updates to tax law to ethics classes.
Other important differences between enrolled agents and other tax professionals include the fact that enrolled agents are federally licensed, meaning they can work in any state. In contrast, CPAs are licensed by the state and may only practice within the jurisdiction in which they are licensed.
The IRS requires enrolled agents to demonstrate their expertise in all areas of taxation before they can be awarded the credential. Those who qualify are given unlimited representation rights to represent taxpayers before the IRS. Consequently, they can represent taxpayers on any tax-related matter, including audits, payment and collection issues, and appeals. CPAs and attorneys are also entitled to this privilege.
Who needs an enrolled agent?
Working with an enrolled agent can be beneficial in a variety of situations. A good example would be when selecting the legal entity for your business.
It is best to work with an attorney when choosing your business entity, but an enrolled agent can explain how taxes are calculated based on your business type.
After you have formed your business, an enrolled agent can explain to you which business expenses are deductible from your taxes. In addition, they can prepare and file your business and payroll taxes.
The services of an enrolled agent are especially useful if you file returns in more than one state, as they can work across state lines. Tax returns for businesses can also be prepared by a CPA, but just in the state in which they are licensed.
In the event that the IRS questions your taxes or conducts an audit, an enrolled agent can assist you.
You're better off working with a CPA if you need assistance with your accounting, bookkeeping, budgeting, or financial planning. However, if you have any tax-related issues, you should consult an enrolled agent.
Reasons to Seek the Help of an Enrolled Agent
IRS regulations and tax laws can be overwhelming. Tax-related issues can be handled by an enrolled agent because they are not only familiar with the law, but also know how to deal with the unique circumstances. An enrolled agent is familiar with Federal tax law, IRS regulations, and specific situations that pertain to taxpayers and, more importantly, how to achieve the best, most cost-effective result for you.
You may benefit from the services of an enrolled agent if any of the following circumstances apply to you.
Tax audits are rare, but when they occur, an enrolled agent can help. An enrolled agent can guide you through the process and provide support along the way.
An investigation by the IRS
Being investigated by the IRS is a serious matter. An IRS enrolled agent who knows the IRS laws inside and out can provide consultation to you and coach you through an IRS investigation. If the investigation becomes criminal, a tax attorney can help.
Fraudulent Tax Claims
If you have committed tax fraud, for example, underreported your income, claimed false deductions, or claimed credits that you did not earn, then you could be suspected of tax fraud. A tax attorney or IRS enrolled agent can assist you in navigating the process of the investigation.
Failure to File or Pay Taxes
Failing to file tax returns or failing to pay taxes owed eventually leads to fines that can get quite steep depending on how long it has been since the original tax return was filed. Tax penalties and costs associated with failure to file your taxes under IRS regulations can be significantly reduced when you work with an IRS Enrolled Agent.
Helpful Resource: What happens if you don't pay your taxes?
Unfiled Tax Returns
An unfiled tax return can result in steep IRS penalties and interest. In addition to helping you file old taxes and ensure that you receive the maximum amount of deductions, enrolled agents are able to help you work through any penalties and interest you may incur.
If you have been issued a tax lien, it would be a good idea to consult with a tax expert. In this case, an enrolled agent can analyze your situation and determine how best to remove the tax lien and prevent the IRS from pursuing further collection action.
A tax levy is a serious matter, and an IRS seizure will continue until enough is taken to pay all taxes owed plus penalties and interest. Enrolled agents are familiar with the various ways tax levies can be stopped. When facing such a situation, it is a good idea to seek the advice of a tax professional.
How to Find an Enrolled Agent
Since EA eligibility is exacting and stringent, EAs advertise their status prominently. In professional directories or online, look for the "EA" designation following the names of professionals.
Consider the continuing education and ethical requirements if you choose someone from a directory. An EA of yesterday may not be an EA of today. Check out the EA referral service and NAEA as well. A person's enrolled agent status can also be verified directly with the IRS.
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