Don't overlook using an enrolled agent at tax time
By Cora M. Barnhart • Bankrate.com

At tax time, possible confrontations with the Internal Revenue Service haunt many working Americans. While some level of paranoia during the tax season may seem reasonable, a few of these concerns are justifiable. Serious personal problems sometimes prevent a taxpayer from filing a return and this omission could escalate into several years. Intentions to become tax compliant weaken as the individual imagines possible retribution for these missed returns. Can these delinquent offenders safely become tax-compliant again?

This tax tip discusses a possible solution for the dilemma described above, the enrolled agent. Enrolled agents are tax professionals licensed to represent taxpayers before the IRS. After describing the background and purpose of this profession, this tip distinguishes enrolled agents from other tax professionals. You also will learn what you can do if you haven't filed taxes in a while. This process begins with contacting an enrolled agent in your area.

History and responsibilities
Enrolled agents date back to 1884. Many taxpayers claimed losses from the Civil War that were questionable, and Congress recognized a need to regulate individuals representing citizens dealing with the Treasury Department about their taxes. President Chester Arthur responded by creating enrolled agents.

Today, enrolled agents assist taxpayers in a number of ways:

• They prepare tax returns
• They answer questions regarding national, state and local tax laws

- advertisement -

• They represent taxpayers in disputes with the IRS

Enrolled agents prepare millions of tax returns annually. They also provide tax assistance for estates, trusts, partnerships, corporations and other entities that are required to report taxes.

Comparisons to other tax professionals
What does it mean to say an individual is an enrolled agent? "Enrolled" refers to the fact that the federal government licenses these professionals. They are "agents" in that they are authorized to appear in place of a taxpayer before the IRS.

Enrolled agents differ from other tax professionals in a number of ways;

• They are required to demonstrate their competence in tax matters before they represent a taxpayer before the IRS.
• They all specialize in taxation
• They receive their authority from the federal government instead of the state government.

Attorneys and Certified Public Accountants don't always specialize in taxes. They also have state licenses, which limits where they can practice in the U.S.

Training and continuing education
So you want to become an enrolled agent? Or do you just want to understand your tax professional's background? Basically, there are two ways an individual can earn the designation:

• Pass a rigorous, two-day exam administered by the IRS before undergoing a detailed background check; or
• Work at the IRS for at least five years, regularly interpreting IRS codes and regulations.

Enrolled agents must also complete 72 hours of continuing professional education every three years to maintain their status.

Haven't filed in a while?
If you haven't filed a required tax return, for any reason, you should contact an enrolled agent. Once the IRS designates you as a non-filer and has to search for you, they could:

• Request part of your paycheck
• Place a lien on your property
• Freeze or seize your bank accounts
• Prosecute you

Voluntarily filing your missing tax returns works in your favor. Refunds are due to three out of four returns, so there is a possibility you are entitled to a refund. However, you must request it within two years of the time it is due or the IRS won't repay you.

Already thinking coming forward is a waste of time because you know you owe the IRS taxes? Don't panic: you can still do the right thing. If you owe less than $10,000 and will be able to pay the full amount within three years, you can set up a monthly installment plan with the IRS.

What if you owe the IRS more money than you will ever be able to pay? Your enrolled agent may be able to work out a compromise with the IRS so that the amount is adjusted to one you will be able to pay.

What happens if the IRS accepts your Offer-In-Compromise (OIC)? The IRS considers your total tax liability, including interest and penalties, paid in full. However, an OIC is a mathematical formula, NOT an amnesty program. The National Association of Enrolled Agents (NAEA) strongly recommends professional assistance when compromising a tax liability.

Locating an enrolled agent
Contact the National Association of Enrolled Agents (NAEA) to find an enrolled agent in your area. You can do this in one of several ways:

• Search their Web site and select "Find a Tax Adviser." You will search by state and then by ZIP code.
• Call the NAEA 24-hour referral service toll-free at 1-800-424-4339.
• Write your request to the NAEA at:
  National Association of Enrolled Agents
  200 Orchard Ridge Drive, Suite 302
  Gaithersburg, MD 20878

Many enrolled agents are also listed in the yellow pages. Look under headings such as "Tax Preparation" and "Enrolled Agent."

Conclusion
This tax tip introduces a potential solution for delinquent taxpayers, an enrolled agent. Enrolled agents are tax professionals licensed to represent taxpayers before the IRS. After describing the background and purpose of this profession, this tip distinguishes enrolled agents from other tax professionals. You will also learn what you should do if you missed filing a return, as well as how to contact an enrolled agent in your area.

-- Updated: Jan. 4, 2005