Tax Help – What do you really need? (Part 4 of at least 3) Enrolled Agents

• IRON100
• October 30th, 2009

I decided to use the title above to see if anyone was really paying attention. In all likelihood I will add one other post covering the situations in which enrolled agents exclusively, tax attorneys exclusively, and both tax attorneys and enrolled agents may be used in the final post on tax help.

According to the National Association of Enrolled Agents (or N.E.A.E) at www.neae.org there is a precise definition for an enrolled agent. I would hate you to think that I am writing a "cut-and-paste" book report, but verbatim from the website, an enrolled agent is defined as "a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals."

These positions were established beginning in 1884 to settle back tax liabilities and fraudulent claims after the American Civil War. Since that time, enrolled agents deal specifically with representing taxpayers who have tax issues with the IRS either for poor reporting practices or simply to pay back taxes. The key thing to remember is that the U.S. Federal Government through the U.S. Treasury Department authorizes these agents to represent clients to the IRS in all Federal tax disputes if the client so chooses to use an enrolled agent.

One might ask what the big deal is with regard to that designation. It is a big deal because enrolled agents must meet specific criteria in order to become an enrolled agent. These criteria are:

1) An enrolled agent must have worked for the IRS a minimum of 5 years in a position that regularly interpreted tax code and applied tax regulations, OR

2) Pass a series of extensive tests from the IRS regarding all aspects of the U.S. Federal Tax Code. The test is far more strenuous than the course some tax preparation company might give to its students and prospective employees. It covers the gamut of laws and codes.

3) The minimum continuing education requirement is 72 hours of training to be reported to the IRS every 3 years. If one is to be a member of N.E.A.E., that requirement is 90 hours of continuing education to be reported to the IRS in that same 3-year period.

What enrolled agents can do is:

1) Advise, represent, and prepare tax returns for virtually any legal entity (individual, partnership, corporation, trust, and other legal entities) that have IRS reporting requirements. Note that most enrolled agents will offer some kind of "legally aggressive tax preparation". That term, "legally aggressive tax preparation" means that the enrolled agent will prepare the returns to maximize legal deductions to the advantage of the taxpayer. What one as a taxpayer MUST REALIZE is that because one is legally liable for one's tax return and NOT the preparer, one MUST CAREFULLY DOCUMENT these deductions and be prepared to defend the logic and the application of these legal tax deductions to the IRS. An enrolled agent is not going to willfully violate the United States Tax Code to reduce your tax liability. Many people will not pursue legally aggressive tax preparation because they are fearful of the IRS and the penalties that organization might levy if mistakes were made during the tax year. Others will not do it because they hate keeping tax records. I personally think both are lame excuses if one uses LEGAL means to reduce taxes. If you run a business, you have every legal right to maximize your profits as they are vital to the survival of your business. The same principal applies to individual tax payers who simply want to keep food on the table and send their kids to college.

2) Before 1998, an enrolled agent did not have any agent-client privilege. Agent-client privilege is confidentiality of information between the agent and client that occurs during the process of an audit or a collection procedure. That confidentiality would never apply to the preparation and filing of any Federal Tax return. In 1998 under the IRS Reform and Restructuring Act, This limited form of agent-client privilege was granted under the U.S. Department of the Treasury's Circular 230.

Remember two other key things about enrolled agents:

1) Though you may have limited agent-client confidentiality, an enrolled agent cannot represent you in a U.S. Federal Tax Court. Only a duly authorized tax attorney can do that. An enrolled agent can represent you to the IRS in audits and tax preparation.

2) With regard to state tax courts, enrolled agents cannot represent you in state courts because they are federally authorized and NOT authorized in any particular state for legal representation in a tax court. You will have to be represented in a state tax court by a tax attorney who is duly authorized by the particular state in which the state tax code applies.

Basically, enrolled agents offer a taxpayer an enhanced set of skills with regard to filing for the purpose of legal tax minimization and with regard to dealing with the IRS when there is a dispute between it and the taxpayer. 

Now the big question is "If an enrolled agent cannot represent me in court, why do I need an enrolled agent?  A CPA or a taxpayer might do just as well, right?"

The answer to that question depends on a few factors. I fear the threat of people smashing their heads against the keyboard if I try to cover that in detail here, so I will let the suspense build before answering that group of questions above. I believe in saving money on computer equipment, so I will stop here until next week.

DieBrokeBlog is still looking for a few good men and women from the community to blog on specific topics of interest in personal finance. StockTwits represents a very diverse group of very smart people, and we invite you to share your knowledge and experience with the community. If you like, send an example of your writing (say 500 words or so) to buffalotrader100@gmail.com. We are getting responses and I am screening them, but we would like a few more. Thanks to all who have submitted items thus far.

Tickers: corporation, enrolled agent, estate, IRS audit, IRS tax collection, legal entities, partnership, tax court, tax help, trust

blog comments powered by Disqus