I was recently credentialed as an Enrolled Agent and realized many people have never heard of an Enrolled Agent (also simply known as an ‘EA’). Most of my friends and family know that I have an accounting degree, work for a public accounting firm as a Certified Internal Auditor (CIA), and I am eligible to take the CPA exam; so naturally they ask why I chose to become an Enrolled Agent versus a CPA. Keep reading to get a better understanding of the difference between the two and why I specifically chose to become an Enrolled Agent.
What is an Enrolled Agent and How Does One Become an Enrolled Agent?
Directly from the IRS website:
“An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
Enrolled agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before.”
How Does the Exam for an Enrolled Agent Differ from the CPA Exam?
The Enrolled Agent exam is a 3-part exam with 100 questions per part. 100% of the questions in the 3-part exam cover various IRS tax related questions in the following areas:
On the other hand, the CPA exam is a 4-part exam with only 1 part that has questions related to taxation (mostly business-related taxation). This represents only 25% of what CPAs are tested on. I won’t outline the full CPA exam like I did the Enrolled Agent exam considering 75% of the exam is unrelated to tax law.
SIDE NOTE: The minimum amount of tax knowledge required to pass the 4-part CPA exam (as noted above) is another reason I chose the Enrolled Agent route. Personally, I didn’t want to spend all the time and effort on an exam in which I would only use approximately 25% (or less) of the skill set that I tested for. I felt this would be a disservice to my clients considering the Honeycutt Pryor brand is specifically built around tax preparation and representing taxpayers before the IRS.
Additional Differences Between Enrolled Agents and CPAs
SIDENOTE: In essence, the mobility requirements along with the limited tax knowledge required to pass and maintain the CPA license are various reasons that many CPAs firms will hire Enrolled Agents to work specifically in their tax division. Based on my personal experience working as a CIA at a public accounting firm, many CPAs prefer and specialize in working with clients on business-related financial accounting. They leave the taxation to Enrolled Agents because of the ever-changing complexity of tax laws.
While there is no right or wrong answer as to who you should choose to prepare your taxes, or handle any tax-related issues, it is imperative that you understand the difference behind the “letters” at the end of a professional’s name when you hire them. It is key that your professional is licensed (i.e., Enrolled Agent, CPA, Tax Attorney, Registered Tax Preparer) and able to answer your questions or concerns in a manner that makes you feel confident in hiring them as your tax preparer or representative before the IRS.
SIDENOTE: Registered Tax Preparers do NOT have unlimited representation rights before the IRS like Enrolled Agents, CPAs, and Tax Attorneys
Overall, it is advantageous and more cost-effective to use Enrolled Agent when you need assistance resolving an IRS debt/dispute, tax preparation, or have out-of-state tax returns. On the other hand, a CPA is more advantageous when advice on business accounting is needed or an audit attestation of your business financial records which can be provided to the IRS. If the CPA’s specialty is tax, then there is essentially no difference between an Enrolled Agent and the CPA. Also, if you already use a CPA for your business accounting, it may be more convenient and cost-effective to allow them to prepare your tax return as well.
SOURCE: IRS Enrolled Agent Information https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information
SOURCE: AICPA CPA Candidate Blueprint http://www.aicpa.org/BecomeACPA/CPAExam/ExaminationContent/DownloadableDocuments/cpa-exam-blueprints-effective-20170401.pdf
I am a personal and small business finance enthusiast with a deep interest in making people's lives a little easier with financial tips and advice.