Note: If you’re already an EA, CPA, or attorney, then this post will be of zero interest to you. If you’re an unenrolled preparer, however, keep reading…
It’s becoming increasingly common for me to receive emails like this one from a return preparer in Sacramento, CA:
I would like to pursue this opportunity. I am currently not an EA. What ways have others moved ahead until they became an EA.? Can I hire one? What do you suggest?
Here was my verbatim reply to this particular email:
By “this opportunity”, I presume you’re referring to collections
While hiring an EA, CPA, or attorney is definitely an option, I would still encourage you to obtain your Enrolled Agent license yourself. Honestly, the test isn’t that difficult for an experienced tax preparer that puts in a couple weeks of study. The Gleim test prep books are the ones I used, and they were pretty good.
The reason I would encourage you to get your license yourself, even if you hire a licensed person to do the work, is because by IRS regulation, you must be licensed in order to solicit representation services. In other words, it’s a violation for an unlicensed person, even an experienced preparer, to sell licensed representation services.
A couple weeks of study and a few hundred dollars for the tests is a tiny price to pay to be able to sell something as lucrative as tax resolution, in my biased opinion. 🙂
Since this comes up frequently, I figured it was finally worth it’s own blog post, so here we go.
Let’s start with the one thing that I feel I’ve become a broken record about over the past few years:
In order to sell tax resolution services, you MUST be licensed. This is non-negotiable.
I’m starting with this, instead of “why you should be licensed”, because I feel like it’s the most salient point for anybody reading this blog. Most folks end up here because of the information I provide on marketing and selling tax resolution services.
In case you’re not familiar with Revenue Procedure 81-38, this was the original Revenue Procedure covering limited practice without enrollment. Section 8 of this Revenue Procedure explicitly bars individuals that are NOT an EA, CPA, or attorney from soliciting representation services (which is what “tax resolution”) is.
Many folks erroneously believe that every provision of 81-38 was replaced by Revenue Procedure 2014-42, but that’s not true. 2014-42 modifies and supersedes 81-38 in the relevant sections, but doesn’t entirely replace it. 2014-42 was issued as a direct result of the Loving court decision, which struck down the IRS RTRP program (which I’ll discuss more in a moment). 2014-42 created the voluntary Annual Filing Season Program, and place further restrictions on limited practice by unenrolled preparers.
Here’s the single biggest change: Under the old 81-38, you had limited representation rights for a client if you prepared the tax return in question. Under 2014-42, this right was removed — unless you’re an Annual Filing Season Program participant.
This is obviously being challenged in court as of this writing, but no decision has yet been issued. Also, Congress has taken no action to authorize the Service to regulate preparers under Circular 230 (which I’ll also discuss more of in a moment).
So here’s the bottom line on 2014-42 and what’s still in effect from 81-38:
- You can no longer represent a client in an examination if you prepared the return, unless you’re an AFSP participant.
- You still can’t solicit representation services without being licensed. This means you can’t conduct tax resolution sales consultations or send personalized, situation-specific mailers, faxes, emails, phone calls, etc.
For these two reasons alone, I believe that every unenrolled preparer should either become an Enrolled Agent or accept the fact that your career will ONLY involve return preparation.
Return preparation is obviously a lucrative market. And unenrolled preparers that conduct tax resolution-style marketing to service the unfiled return market are doing quite well. So I’m not in any way trying to construe tax prep-only business models as a bad thing. In fact, executed properly, it’s an awesome thing — especially if you choose the 6-month vacation option.
But if you have grander ambitions for your business… If you want to be of greater service to your clients… If you want to get it on the “big bucks” in the tax world… Then you should become an EA.
Caveat: If you’re currently in the tax/accounting industry, and you already possess an accounting or law degree, but just never took the CPA exam or the bar exam, then I’d encourage you to do so. Why? Because the general public knows what attorneys and CPAs are. The “brand” recognition is immense, and you can bypass some of the marketing obstacles faced by those of us that are Enrolled Agents.
Assuming you don’t already have an accounting or law degree, however, I’d highly encourage you to register for the Special Enrollment Exam (SEE). That’s the formal name of the EA test.
It used to be that the EA exam consisted of four parts, given over the course of two days — once per year! That hasn’t been the case for a number of years. Now, you can take the SEE at any Prometric testing center, any day that they’re open for business. There are also only three parts – individuals, businesses, and representation/procedures.
If you’re an experienced 1040 preparer, then Part 1 of the SEE should be a cake walk. Part 3 requires very little study, and is often the one I suggest people take first. Without a doubt, Part 2 is the most difficult for most people (myself included), but if you adequately prepare, it’s not that bad.
Here is my complete list of reasons you should become an Enrolled Agent, even if you don’t plan to offer representation services:
- IRS is pushing Congress to give them regulatory authority over preparers, subjecting them to Circular 230. I think it’s inevitable for this to happen in the next few years, and if you’re an EA already, you’ll simply bypass whatever roadblocks the Service puts up once Congress grants this authority.
- Flexibility and options. Being able to branch out into other practice areas when you want to is powerful. If you prepare a return and do want to offer your tax prep client full representation services on an issue, you can.
- Even under the Annual Filing Season Program, you’re still limited to Examination on the returns you prepare. You can’t represent in Appeals, Collections, etc. Being an EA removes that limitation.
- It’s not as hard as you think it is. Get the Gleim books or some other study program, some test prep software, and buckle down for a few weeks. Each part of the exam is $109, so even with study materials, it’s under $600 to become an EA. That’s dirt cheap considering the earning power it gives you. Heck, if you’re a college student studying accounting, get your EA license and do representation work to put yourself through school — forget about student loan debt!
- If you’re a tax resolution sales/marketing person, such as a “closer”, it’s time for you to check yourself before you wreck yourself. There will come a day when some government agency starts to enforce these regulations, and when they do, you’re gonna have a bad day. Get your act together NOW — become an EA. Plus, it’s just the right thing to do.
- If you’re an RTRP, understand that it no longer means anything. Yes, I know you’re proud of it, but the courts struck it down. It provides you no benefit, and it’s not a license to do anything. I’d encourage you to drop it from your vocabulary entirely, and just get your EA license. Part 1 of the SEE is not much more difficult than the RTRP exam was, so if you passed RTRP, you’ll do fine on the SEE.
- In my opinion, the biggest reason for becoming an Enrolled Agent: Money. Outside of entertainment or sports, I don’t know of any (legal) profession that a high school dropout can get into that is more financially lucrative than IRS representation work, be that exam or collections. To become an EA, you need a clean background check and to pass three exams. That means that within a 90-day window, you can receive a golden ticket to a $200,000+ per year income working for yourself, from home (or the beach in Bali…), providing a service that is in very high demand and that commands high fees for what is fairly straightforward work.
So there you have, it my list of reasons that all return preparers should become an EA. This even applies for those of you that are state-licensed preparers, such as in California and Oregon, because your state license doesn’t mean jack diddly squat to the IRS (and that’s where the big money is).
There’s no doubt in my mind that I’ve offended a few people with this post, and I’m OK with that. Sometimes the truth hurts, and that’s just part of life.
If you want to stay ahead of any regulatory curveballs that are likely to hit us in the future, and you want to offer higher value services than just return preparation, then seriously — just become an Enrolled Agent. Once you do, you won’t regret it.