Many business people are not aware of what an Enrolled Agent (EA) is, or how an Enrolled Agent can help with business taxes. Kirk Ward, an Enrolled Agent, answers your questions:
What is an Enrolled Agent?
According to the National Association of Enrolled Agents (NAEA):
EA is the professional designation for an Enrolled Agent. After the Civil War, many citizens had problems settling claims with the government for horses and other property confiscated for use in the war effort. After many petitions and much pleading, Congress in 1884 endowed Enrolled Agents with the power of advocacy to prepare claims against the government and to seek equitable justice for the citizenry. For many years, the purpose of the Enrolled Agent was to act in this capacity.
In 1913, when the income tax was passed, the job of the Enrolled Agent was expanded to include claims for monetary relief for citizens whose taxes had become inequitable. As the income tax, estate, 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.
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. The IRS has been keen to point this out and note that it is also not a "license." However, it can be thought of as an "earned credential," bestowed by the Treasury Department, through the IRS. I say it is "earned," because it will not be bestowed unless the individual passes a rigorous test of tax law.
The EA test is on tax law, which distinguishes it significantly from the CPA 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.
An EA designation can also be awarded by the IRS based on five years employment with the IRS, in a position where the individual regularly interpreted and applied tax law. This would not include the folks who answer the 1-800-tax-1040 advice line.
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.
How long does it take to become an EA?
I took the test back in the 90's. It was a two day four part exam, but the entire process took about a year, from the time I registered to take the exam, through the taking of the exam, to the grading of the exam and issuance of the credential or "Certificate of Enrollment."
Currently, the exam is given in three parts at over 300 locations across the US. Candidates are allowed to take one or all parts of the exam at the time of their choosing during a period, usually ranging from May through February of the next year.
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 accountant's. 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.
Can someone make a living as an EA?
Another organization, the National Society of Accountants (NSA) reports that approximately 50% of its members are Enrolled Agents. They also report that in 2005, the average practitioner in small rural communities had practice revenue of approximately $140,000 and a net profit to the owner of approximately $60,000. Large city practitioners were approximately double that amount.
What would a small business owner use an EA for?
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. As I stated earlier, 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.
How much does an EA charge?
Like any professional, as much as they can get by with. However, the NSA's 2006 Survey of Income and Fees states that the national average charged by their members is approximately $75 per hour for regular monthly accounting. Typically, an individual income tax return with itemized deductions is under $250.