The Tax Code
The ever-expanding United States Tax Code approaches 17,000(1) pages containing approximately 9 million(2) words. Hardly a day goes by without a change to the code. A compilation of the tax laws written by congress (26 USC), the treasury regulations (26 CFR), and various IRS rulings fills 71,684 pages.(3) The complexity of the tax laws creates an opportunity for those who understand them. As you might imagine, these rules are confusing to many taxpayers, who often seek professional help in preparing a tax return and dealing with the IRS. Now here comes a bombshell, according to a report by the General Accounting Office of the United States(4) millions of taxpayers using paid preparers likely overpaid taxes due to preparer error.
How does this happen?
Estimates are that there are more than 1.2 million paid tax preparers in the United States. At present a paid preparer is not required to demonstrate competency or understanding of the tax rules. Those able to fog a mirror can prepare a tax return for money.
What is an Enrolled Agent?
An enrolled agent is a person who has earned the privilege of practicing, that is, representing taxpayers, before any office of the Internal Revenue Service. An enrolled agent can negotiate with the IRS during examinations and appeals, and act in place of a taxpayer signing consents and executing agreements on their behalf. An enrolled agent is the only professional granted a right to practice directly from the U.S. government. Attorneys and certified public accountants (CPA) have state licenses, which limits their practice only to the states where they are licensed. Unlike a CPA or Attorney, an enrolled agent holds a federal license and has the right to represent any taxpayer in any state regarding federal tax matters. An enrolled agent is considered a tax specialist, which sets them apart from attorneys or CPA’s who do not always specialize in taxes. The practice of enrolled agents before the IRS is not limited and they may represent taxpayers before the IRS, performing the same tasks as an Attorney or CPA. The capabilities of an enrolled agent extend beyond just preparing returns to areas such as representing clients in cases involving audits, collections, and appeals.
Separate yourself from the crowd.
An un-enrolled return preparer may not sign documents for a taxpayer and may only represent taxpayers in limited situations before revenue agents and customer service representatives. An un-enrolled preparer’s ability to practice before the IRS is very limited. Generally, it is limited to the examination function of the Service, and only with respect to a return he or she prepared. Consequently, an un-enrolled preparer cannot practice before appeals officers, revenue officers, and Counsel. In addition, an un-enrolled preparer cannot execute claims for refund, receive refund checks, execute consents to extend the statutory period for assessment or collection, execute closing agreements, or execute waivers of restriction on assessment or collection of a deficiency in tax.
Why Become an Enrolled Agent
- IRS Examinations are up over 100% – According to enforcement results(5) published by the IRS in 2009, examinations of individual returns increased over 100% since year 2000. Throughout this period, the number of examinations rose every year through 2009. Current plans are for a substantial increase in examinations from present levels.
- Growing need for representation – Given the state of our economy, many people now find themselves in a difficult position financially. As you might imagine, many are delinquent on their tax obligations. With IRS enforcement activities on the rise, there is a growing need for enrolled agents who can assist taxpayers in dealing with IRS collection activities.
- Unlimited Earning Potential – You control your career. Why wait for someone to hire you? You can start your own business with unlimited earning potential. As a business owner, you may work full or part time, it is up to you.
- Recession proof career – Income taxes are not going away anytime soon. Competent representation is hard to find, and the enrolled agent designation can help you reach the pinnacle of your profession by allowing you to offer a wide range of services beyond just tax preparation.
- Industry Rules are Changing – Soon IRS registration will be mandatory for all paid preparers. A preparer who is not an attorney, certified public accountant, or enrolled agent, will need to satisfy a competency test and continuing education requirements. The preparer will need to pass the complex test if they prepare business returns. The practice of the new category of preparers will be limited to preparing tax returns for compensation and representing taxpayers in an examination only on a return they prepared. If you plan on preparing returns, you might as well get a designation
- Expand your financial practice – If you are a financial planner already in the business of advising clients, an enrolled agent designation can provide you with an opportunity to offer additional services.
- Expand your reach – If you are a CPA or Attorney, your ability to practice is limited to states where you hold a license. The enrolled agent designation is a federal authorization that can provide you with the ability to represent clients in other states.
- Credibility – The credibility you gain as an enrolled agent can help you command higher fees than others who have not demonstrated their competence.
- Increased Expertise – Improving your knowledge about the various rules and regulations can help make you a better tax practitioner.
Requirements for Enrolled Agents
An enrolled agent does not need a college degree; rather they must demonstrate special competence in tax matters by passing all three parts of the IRS Special Enrollment Examination. An individual with 5 years of relevant employment with the IRS may apply for enrollment without taking the exam.
How do you become an Enrolled Agent?
You must file Form 23, Application for Enrollment to Practice Before the Internal Revenue Service, within one year of the date you passed all parts of the examination. Form 23 is available online at www.irs.gov. The IRS may take approximately 60 days to process your request. During that time, a background check is performed to ensure that you have not engaged in any conduct that would justify the suspension or disbarment of an attorney, CPA, or enrolled agent from practice before the IRS.
(1) http://bookstore.gpo.gov/baskets/cfr-listing.jsp
(2) http://www.taxfoundation.org/research/show/1961.html
(3) Pages in CCH Standard Federal Tax Reporter, http://www.cch.com/wbot2010/WBOT_TaxLawPileUp_(29)_f.pdf
(4) http://www.gao.gov/new.items/d0470.pdf
(5) http://www.irs.gov/pub/irs-drop/fy_2009_enforcement_results.pdf
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