[This post originally appeared on the McClanahan Tax blog and has been lightly edited.]
An Enrolled Agent (or “EA” as we’re called) is a tax professional who has earned the highest tax credential issued by the IRS.
Along with attorneys and Certified Public Accountants (CPAs), Enrolled Agents are authorized to represent taxpayers before the IRS, including individuals, businesses, estates and trusts.
Because of the word “agent,” folks sometimes get the wrong idea that Enrolled Agents work for the IRS. And the position does have a weird origin.
In the wake of the American Civil War, the “Horse Act of 1884” was signed into law and created the position in response to fraudulent war loss claims. Enrolled Agents initially advocated for citizens and prepared claims against the government, but over time the position evolved to include representing taxpayers to the US government in resolving a broad range of tax matters. Maybe now that it’s 2023, the government should update the title so it actually makes sense to taxpayers.
How does an EA differ from a CPA?
For starters, the EA is a federal license, while the CPA is a state license. Becoming an EA is no cake-walk, but it’s not nearly as challenging as becoming a CPA. EA licensing is focused entirely on tax matters. CPA licensing includes some tax but also more broadly includes accounting, business matters, audit, and attestation of financial statements.
One easy way to think about the differences is: “An Enrolled Agent is a tax expert that may or may not also be versed in accounting matters. A CPA is an accounting expert that may or may not also be expert in tax matters.” By licensing, an EA is permitted to do anything a CPA can do except audit or attest financial statements.
How might a competent EA help a business owner or general taxpayer?
1. Tax Preparation and Compliance
Enrolled Agents can help you ensure your business becomes or remains compliant with federal tax laws. They can help identify potential deductions, credits, and exemptions that could minimize your tax liability while helping ensure accuracy and adherence to IRS regulations.
2. Tax Planning
Forward-thinking Enrolled Agents can assist you in developing effective tax strategies tailored to your business and/or personal tax situation. By analyzing your financial situation and business operations, they can provide guidance on how to optimize your tax position, maximize deductions, and take advantage of available tax incentives, potentially reducing your overall future tax burden.
3. IRS Representation
If you or your business are facing an IRS audit or examination, an Enrolled Agent can represent you before the IRS. They can communicate with the IRS on your behalf, handle correspondence, gather necessary documentation, and provide guidance throughout the process, helping to protect your rights and interests.
4. Tax Problem Resolution
If you or your business encounter tax-related issues, such as unpaid taxes or tax liens, Enrolled Agents can assist you in resolving these problems. They are trained to handle complex tax matters, negotiate with the IRS, and propose solutions.
Let's talk if you'd like to explore how to minimize overall taxes through tax planning. And if you have tax preparation needs, we are happy to refer you to our "sister" company McClanahan Tax & Advisory LLC.