Enrolled Agents (#348)

What is an Enrolled Agent?

What is an enrolled agent? This is a tax expert. The concept goes back quite a ways, to 1884, when Congress got annoyed at lots of claims related to Civil War losses, and decided to regulate the people who represent citizens dealing with the U.S. Treasury Department. After the Civil War, people were making many claims to the Treasury Department for reimbursement for their losses, which included more horses than were actually killed during the war. And strangely enough, most of those claims were for thoroughbred race horses and show horses.

So, Congress realized that it wasn’t your average citizens who were making these claims, because the claims were too consistent. Instead, it was the people representing them, who then took a percentage of whatever the government paid out. The resulting regulation of tax representatives was called the Horse Act of 1884, and it covered moral character, criminal record checks and testing. And that was when the “enrolled agent” term was first used.

But the story gets better. In 2013, a libertarian group sued the federal government, stating that it had no authority to regulate tax return preparers. At an appellate court hearing on the lawsuit, Justice Department Tax Division lawyer Gilbert Rothenberg said, “I hate to beat a dead horse,” but the Horse Act of 1884 provides the government with ample authority to regulate tax return preparers.

Enrolled Agent Requirements

An enrolled agent is someone who’s passed a fairly long three-part IRS test that covers individual and business tax returns. And when I say fairly long, I’m talking about a total of ten and a half hours of testing. Which is not minor. Or, you could qualify by having experience as a former IRS employee. If you have worked for the IRS, then your experience has to include at least five years in a specific role, which includes appeals officer, special agent, revenue officer, revenue agent, tax specialist, tax law specialist, or settlement officer. I’ll bet you didn’t even know all those job titles existed.

And on top of that, you have to go through a suitability check, which includes a criminal background check and a review to see if you’ve filed your own tax returns correctly.

But, on the other hand, there’s no specific education requirement, so you don’t need to have a specialized degree, such as a master’s in taxation.

And if you get the certification, then you have to keep it up with an ongoing continuing professional education requirement of 72 hours of training every three years, and you also have to follow a code of ethics – which includes taking an ethics course.

Enrolled Agent Responsibilities

So, what’s the benefit of doing all this work? Well, you can represent taxpayers before the IRS on any types of tax issues, such as preparing tax returns, collections, audits, and appeals. And, you can do it before any IRS office. Which means that you could initially pick up the certification while living in Texas, and still have it be valid if you move to Minnesota and want to represent clients there. That differs from the situation for a CPA, where licensing is at the state level. For an enrolled agent, licensing is at the federal level; there is no state-level licensing.

There’s also a limited client privilege, which means that communications between the taxpayer and the enrolled agent are confidential, but only under certain conditions. The privilege applies when the taxpayer is being represented in cases involving audits and collection matters. It does not apply when the work involves the preparation and filing of a tax return. The privilege also does not apply to state-level tax matters.

Enrolled Agent Exclusivity

Which brings up the question of how exclusive it is to be an enrolled agent. There are about 54,000 practicing enrolled agents, versus about 665,000 CPAs. That’s about eight percent of the CPA total. Is it worthwhile? That depends on you. As is the case with a CPA, you’ll be successful if you can attract clients. If you’re good at this, then your odds of succeeding as an enrolled agent go up. But, as always, the certification only opens the door; you still have lots of work to do to succeed.

Enrolled Agent Earnings

That being said, how much does the average enrolled agent earn? According to ZipRecruiter, the average annual salary is $59,000, with the bulk of all enrolled agents earning between $45,000 and $69,000. But, if you’re really good, those in the 90th percentile earn in excess of $87,000. This is less than what a CPA earns, but keep in mind that a CPA has to complete all kinds of education and experience requirements before getting licensed, which takes years. So, all in all, the enrolled agent pay is not that bad.

Related Courses

Ethics for Enrolled Agents