Enrolled Agent

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

An Enrolled Agent refers to individuals who have cleared all three levels of the Internal Revenue Service (IRS) examination and have become eligible to represent all taxpayers before the IRS to help in filing tax returns, either for personal or business purposes.

Such agents have a very high status and are obliged to maintain the highest level of business ethics. They have the complete right to represent any kind of taxpayer and deal with any type of tax matters they choose to, without any restriction. Their advisory services are recognized throughout the US and are very comprehensive.

What Is An Enrolled Agent (EA)?

Enrolled agents are qualified professionals who advise, guide, and represent taxpayers before the IRS.
They are required to clear the 3-level examination and get certified by the IRS before they put their profession into practice. Work experience in this particular field helps in gaining a better understanding.
They maintain a high level of ethical standards along with a deep understanding of the tax system and keep themselves informed about any changes.
They are highly recognized in the US based on their expertise.

Enrolled Agent Explained

The enrolled agents are expert and certified professionals who handle tax-related matters like filing, audit, or dispute resolution of clients, either individual or business, and represent them to the IRS. It has become a lucrative career option with a combination of technical expertise and oversight by the Federal government. The enrolled agent course offers a wide range of services to clients, quite close to the level of a Certified Public Accountant (CPA) and lawyer. However, they do not require the permission of the state board or any license from them to operate.

They are widely accepted anywhere in the US because of their high level of expertise, strong work ethics, and sense of confidentiality. To gain this status, the candidate needs to clear the Special Enrolment Examination (SEE) as a part of the enrolled agent qualification. Added to prior work experience, their responsibilities include not only providing the best service to clients but also establishing themselves as professionals who are trustworthy, dependable, and proficient in handling disputes to provide justice to clients.

They need to comply with the documentation process as requested by IRS. But it is equally important to fulfill the terms and conditions of any contract that they enter into with their clients. If required, these professionals should be able to testify in front of the IRS and submit all legal documents. In case they are omitting any important information, they should provide a proper explanation regarding the same, otherwise, there may be serious legal consequences.

Duties

The duties of the enrolled agent for IRS can be categorized under three heads, personal, client, and duty to tax administration. Let us dive into each.

Personal – As professionals dealing with monetary and tax concerns, it is crucial that they maintain a high level of ethical value. They are not only accountable to the clients and the IRS but also to themselves. Along with this, they must keep educating themselves about the various changes in their professional world so that they can implement correct solutions and legal procedures during their dealings with clients.
Client – The clients are the most important part of this profession and as such their interest should be above all. As part of enrolled agent qualification, these professionals should have the ability to keep the confidential information of their clients safe and avoid any conflict of interest. EAs have the responsibility of helping clients with the filing of taxes, documentation, and audits along with educating them about their legal rights under the IRS. They also perform advisory services to help clients design tax-saving portfolios to meet financial goals.
Tax administration – They should remain steadily committed to the system and the IRS by responding to any inquiry and advisory requirement entrusted to them. They should meet the latest standards of the IRS ensuring that the status and reputation of the profession is maintained in the industry.

How To Become?

Let us learn about the steps in an enrolled agent course that the candidate should take to gain the qualification and become an EA.

Step #1

The first step is to obtain the Preparer Tax Identification Number (PTIN). To get this number, the candidate has to provide some information, like Social Security Number, name, address, date of birth, phone number, status or previous year’s tax return, a user fee for any debit/credit card in usage, explanation related to any tax-related obligation or felony, details of any other professional certification. Once the above is submitted, the account is created, and PTIN is generated.

Step #2

Next, the candidate must visit the Special Enrolment Examination (SEE) website, schedule the test, and prepare for the exam by going through the sample papers and other resources. The passing marks need to be obtained within 3 years.

Step #3

Next is the five years of work experience working with the IRS, which is extremely important to gain practical knowledge in the field of enrolled agents for the IRS.

Step #4

Finally, after passing the exams, the candidate can apply for the enrolment and pay the fee online. They need to download Form 23, which is the application for getting permission to practice before the IRS. The Form 23, along with a fee, has to be mailed to the IRS.

Step #5

The candidate needs to clear some important scrutiny levels related to tax compliance and returns and criminal background.

However, even after clearing the above, the agent must renew their status every three years. They also need to meet the continuing education requirements, which should be 72 hours every 3 years or 16 hours every year. They should review their credit chart frequently and keep updated contact information.

Examples

Let us take suitable examples to understand the concept better:

Example #1

Let's assume that John has already cleared his EA exam and has experience in tax-related research, consulting, and preparation. He has a very detailed knowledge of tax-related regulations and can communicate very well with his clients to advise them regarding tax planning, ensuring compliance with documentation and applicable laws. He is also proficient in using taxation software, like Turbo Tax and QuickBooks. He has been working as an EA for 8 years, assisting clients with planning and audit in taxation and resolving disputes.

Example #2

Now let us take the example of Max, who has been working as an enrolled agent for the last 3 years and is faced with a situation where the taxpayer is an individual who has a daughter, aged 25, a university student in 2nd year, graduation. Therefore, the girl is dependent on the taxpayer and needs coverage for expenses related to tuition fees and hostel stay. However, the student is eligible for a scholarship on her tuition fees.

In such a case, it is crucial to determine the amount of tax that the taxpayer has to pay. Here, the agent would decide this based on the rules of taxation in the US. In this case, the taxpayer can claim a credit from American Opportunity for the amount of the tuition fees received as a scholarship while filing for returns, but the student has to report an income based on a certain percentage of the scholarship money received.

Salary

Along with details regarding how to gain the enrolled agent status, it is equally important to have a clear idea about the salary structure. Since this option is gaining a lot of value as a career choice, candidates need to remain updated about the continuously changing legal and taxation landscape globally. However, salary will depend on the type and years of experience and also the location of their job. For instance, in California, the salary will be comparatively higher than any other location in the US.

The job levels for enrolled agent status are entry, mid-level, and senior level. Entry-level candidates, who are mainly practitioners, may earn around $52,000 annually, and focus primarily on tax returns. The mid-level professionals may earn a little more than the above, which may again go up to $80,000 per year. However, senior-level professionals have a very lucrative pay scale, which may go up to $132,000 annually. But a minimum of five years of experience is required for this kind of salary structure, which comes with huge responsibility.

Enrolled Agent vs CPA vs Tax Preparer

Even though all three of the above professions are correlated and deal with handling and advising clients regarding taxation, accounting, and financial matters, there are some important differences between them, as follows:

Enrolled Agents	Certified Public Accountant	Tax Preparer
They are particularly specialized in tax-related matters.	They may or may not specialize in tax.	Specializes in only preparation of tax returns.
They cannot compile or audit financial statements.	These professionals can compile or audit financial statements.	They do not compile or audit financial statements.
The EA has to either clear the 3-level SEE exam or have a minimum of 5 years of tax-related experience.	These professionals need to clear the 4-level CPA exam along with work experience.	They do not need to clear any exams; they just know how to file tax returns.
The IRS certifies them.	The State Board of Accountancy certifies them.	They do not have such certifications.

Frequently Asked Questions (FAQs)

What is the cost of the Enrolled Agent exam?

Compared to many other certifications, this qualification costs less, even though it cannot be called inexpensive. It costs at least $700, which is again less than the CMA or a CPA. However, each time a candidate takes the exam, they need to pay $206. Thus, it is always better to clear each level at the first attempt to save costs.

What are the benefits of an Enrolled Agent?

These agents are experts in the field of tax, which is always in huge demand. Their job is not affected by recession and has a huge earning potential. They possess ethical responsibility, creating trust and credibility among clients and representing them to the IRS by conforming to the rules.

What is the pass rate of the Enrolled Agent?

The pass rate of the exams is quite impressive. As per the data for 2022-23, the pass rate of Part 1 was 60%, Part 2 was 69% and Part 3 was 70%. Compared to other exams, like that of CPA, the rates are very high.