What is an Enrolled Agent?
Many business people are not aware of what an Enrolled Agent (EA) is, or how an Enrolled Agent can help with business taxes.
What is an Enrolled Agent?
According to the National Association of Enrolled Agents (NAEA):
EA is the professional designation for an Enrolled Agent. EA's are tax professionals, similar to CPA's and tax attorneys. In other words, they can help you with your business - and personal - tax returns and they can represent you before the IRS, in all matters except for Tax Court, where an attorney must represent you.
In 1913, when the income tax was passed, the job of the Enrolled Agent included claims for monetary relief for citizens whose taxes had become inequitable. As the income tax, estate tax, 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, negotiating with the Internal Revenue Service on behalf of their clients.
Are Enrolled Agents accepted by the IRS?
The IRS says that Enrolled Agents can represent taxpayers before the IRS. 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...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.
How does someone get to be certified as an EA?
The "Enrolled Agent" credential is not a "certification," although it is regularly referred to as such by many practitioners, including the NAEA.
To become a credentialed EA, the person must pass an IRS test covering individual and business tax returns, they must agree to adhere to ethical standards, and they must complete 72 hours of continuing education every three years.
The EA test is on tax law, which distinguishes it significantly from the CPA (certified public accountant) exam which is almost exclusively on accounting and auditing rules and procedures, specifically designed to facilitate the interpretation of financial statements. This financial statement interpretation generally has no relevance to tax law except as to how tax obligations are presented in the financial statement, not how the taxes are calculated.
All candidates are subject to an IRS background check and are subject to being "disbarred" from practice before the IRS for misdeeds. An EA can also be disbarred for failing to meet their continuing education requirements.
What can EA's do?
Enrolled Agents are specifically authorized to represent taxpayers before the IRS at all administrative levels, up to, but not including Tax Court. Only attorneys and individuals who have passed the "Tax Court Exam For Non-Attorneys" are authorized to argue cases before Tax Court.
Most Enrolled Agents operate accounting practices and compete directly with CPA's, bookkeepers and other accountants. Because their enrollment is a federal designation, they can work across state borders, whereas CPA's and attorneys must meet the reciprocity requirements of any state they wish to practice in.
What can Enrolled Agents NOT do?
While Enrolled Agents do perform accounting tasks, and may perform certain kinds of audits, they are limited in that they cannot express an "unqualified" type of opinion, such as a public company would need when filing their financial statements with the Securities & Exchange Commission. Having SEC compliant audited statements is not a requirement for most small non-public businesses.
What would a small business owner use an EA for?
Kirk Ward, an Enrolled Agent, says:
An EA can prepare your business taxes and represent you before the IRS if you are audited; you can also use an EA for accounting tasks. I would also note that most small business owners would be better served if they were to consider an Enrolled Agent....
To the best of my knowledge, there are NO questions on tax law on the CPA exam, only questions on the accounting treatment of tax obligations.
And, since there are no small privately held businesses I know of that are required to file their financial statements with the SEC, this all the more reason to consider a professional who has been tested on the business owner's main concern, taxes.