The Enrolled Agent license is the highest designation that the IRS awards tax professionals. But what does that mean in plain English? Tax professionals and Congress often speak in tax lingo, taxanese. We forget to break things down so your everyday person can understand. The funny thing is, that many tax professionals do not fully understand the power that Enrolled Agents hold in the tax world. It is actually a credential that can help them better serve their clients.
Not all Enrolled Agents are the same. If you're a subscriber you know that yours truly focuses on tax representation and my personal mission. That is to fill the tax literacy gap, one taxpayer at a time. However, some Enrolled Agents prefer to do compliance work. While others prefer to do more preventative work, focusing on tax planning. Today I am going to focus on what Enrolled Agents do that distinguishes them from all other tax professionals, tax representation.
***Disclaimer: This is not a Certified Public Accountant (CPA) or Tax Attorney diss post. Both of these credentialed professionals can represent taxpayers before the IRS as well. However, they are not licensed by the Internal Revenue Service. Their license is from their state.
What is an Enrolled Agent?
An Enrolled Agent is one of the best-kept secret credentials in the tax world. Because I've covered it in other articles (What is an Enrolled Agent?) I won't go into too much detail here.
Briefly...Enrolled Agents are individuals whom the IRS has given the right to represent taxpayers. As a matter of fact, Enrolled Agents have unlimited tax rights before the IRS. Sorry, am I speaking taxanese?
In layman's terms, an Enrolled Agent can handle any IRS tax issue in any IRS office. That is if the situation has not turned criminal. At that point, the taxpayer will need an attorney to represent them in tax court. But if the problem is being handled by the IRS an Enrolled Agent has all of the same authority a Tax Attorney does in that situation. This is the beautiful distinction between Enrolled Agents and other tax professionals.
Let's say I have a client in Texas, which I do, I have clients all over the world, and they owe the IRS $127,000. I'm in Louisville, Ky but because I have unlimited practice rights I can take this person on as a client. If the taxpayer cannot pay the IRS in full by the due date I step in on their behalf. I represent them to negotiate a payment arrangement. The beautiful thing about that is the taxpayer oftentimes does not even have to be present.
Interesting, right? So let's take a look at what tax representation is.
What is Tax Representation?
Tax representation is when someone stands before the IRS on behalf of a taxpayer. In layman's terms, they substitute themselves for the taxpayer to communicate and make arrangements with the IRS. Some tax professionals have limited representation rights. This includes those that participate in the annual filing season program.
These professionals have decided to do annual updates and pass a competency test. This should be the bare minimum required by all tax professionals in my opinion. However, everyone does not agree with me on that point. So the IRS actually lost the battle of making it a requirement. Nevertheless, the participants have limited practice rights, meaning they can communicate with the IRS about returns they actually prepared. But the buck stops there.
As an Enrolled Agent with unlimited practice rights a tax professional can discuss returns they did not do. They can also set up payment arrangements, attend meetings, telephone conferences, and more. I describe it to clients as stepping into their shoes and showing up for them. This is a collaborative effort between the tax professional and the taxpayer. I always let my clients know, "I can't work unless you do!"
Certified Public Accountants (CPAs) and Tax Attorneys are the only other professionals with unlimited practice rights before the IRS. But keep in mind these two professionals received their credentials from their state, not the IRS. A CPA may not even specialize in tax. A tax attorney may never deal with the IRS at the negotiation level. They may only handle legal matters with the IRS when the situation turns criminal.
It is good to not only choose a tax professional based on their credentials. You'll also want to take a look at their experience and area of specialization. I talk about this a little bit on my podcast, Tax Relief with Timalyn Bowens.
What other areas of tax does an Enrolled Agent work in?
An Enrolled Agent isn't limited to tax representation. Some Enrolled Agents also work in tax compliance. Better known as tax preparation to the general public. I actually know some Enrolled Agents that only do compliance work because they don't feel that representation or planning is for them. This includes individual tax returns, such as the 1040 that individuals file each year. Or it could be business returns at the Federal, State, and Local levels. Maybe even payroll taxes.
The IRS and other tax agencies require these so you can stay in good graces with them. A lot of tax issues that I come across with my clients are due to poor compliance practices. So having a tax professional who knows how to properly report income and expenses in a timely manner is important.
Another area that Enrolled Agents often work in is tax planning. This is a step above and beyond tax compliance. Tax planning takes past data from tax returns and the current situation to make projections. The Enrolled Agent then takes these projections to find ways to reduce the tax liability. These strategies and the implementation of them by a professional are tax planning.
Note that each of these areas of tax are specializations of their own. Tax representation is often needed due to a lack of tax planning and poor tax compliance. As a taxpayer, it is important to understand the engagement you have with your professional. The same is true if you are a tax professional. Make sure that you are communicating with your client that not all 3 of these services automatically come with tax preparation.
Due to them being areas of specialization, more education, and additional work, they will have separate costs. If you are offering all three make sure you are charging accordingly for that and letting the client know. If you are not offering all three of those services and only compliance, make sure the client also understands that.
If you are a tax professional interested in becoming an Enrolled Agent you may be wondering, "What's Next?" Well, I break down How to Become an Enrolled Agent in another article. If you're looking for support I'd like to invite you to join my private community, the Tax Pro's Representation Journey. Not only is there a community where you can speak with me and other members each week. You also get a weekly coaching podcast and article from me. This helps you lay a solid foundation to achieve the goals you have for being an Enrolled Agent and I keep you accountable for reaching them.
Maybe you have no desire to become an Enrolled Agent and you need tax help, as soon as possible. I own an accounting firm, Bowens Tax Solutions. We specialize in helping taxpayers who owe the IRS $100,000 or more. You can book a paid consultation with me on my website. During our time together I will go over your situation and provide you with a roadmap of how to fix the problem. If we're a good fit to work together I will invite you to partner with me on your engagement.
No matter what, I wish you the best. It doesn't have to be me, just make sure you get the help you need. Because back taxes shouldn't ruin your life!
Timalyn S. Bowens EA is America's Favorite EA and Tax Expert who will work hard to find a customized legal solution for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states. As the host of Tax Relief with Timalyn Bowens and a YouTube content creator she empowers taxpayers to make educated decisions about their tax situation.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.