TIGTA Report Suggests Tighter Standards for Enrolled Agents

Jan 13, 2020

Becoming an enrolled agent is among the most prestigious designations afforded to tax specialists. They are federally authorized tax practitioners, empowered by the U.S. Department of the Treasury, that represent taxpayers before the IRS for tax issues such as audits, collections, and appeals. Like attorneys and Certified Public Accountants (CPAs), enrolled agents have no restrictions on the kinds of clients they represent, the types of tax matters they can handle, or the IRS offices in which they can represent clients. Enrolled agents are entrusted with the personal information of the taxpayers they represent, and their status is the highest credential awarded by the IRS. Applicants enter the enrolled agent program by either passing a three-part examination, covering business and individual returns, or by certifying their experience as former IRS employees. Now, thanks to an audit by the Treasury Inspector General, standards for becoming an enrolled agent may get even tighter.

Like all professionals who partner with the IRS – whether as E-File providers, acceptance agents, or contractors – enrolled agents are required to pass a suitability test before enrolling in the program. The IRS believes that maintaining high moral character while acting as an enrolled agent is a prerequisite for improving taxpayers’ confidence in the fairness of the tax system. These suitability tests have four parts: criminal background check, tax compliance investigation, citizenship verification, and a review of professional licensing credentials.

The criminal background check involves obtaining an applicant’s fingerprints and forwarding them to the FBI to identify criminal history. Tax compliance verifies that the applicant has filed all required returns and has avoided fraud penalties. Citizenship involves ensuring that the applicant is either U.S. Citizen or a lawful permanent resident with authorization from the Social Security Administration to work in the United States. Finally, if an enrolled agent claims to be an attorney or CPA, the IRS will use a licensing authority’s website to verify that the applicant has an active professional status, such as verifying that a certified public accountant is licensed to practice or an attorney is in good standing in his or her state or jurisdiction.

Not all criminal convictions will result in a failed suitability check, however. To assess whether an applicant with a reported criminal history can participate in the program, IRS employees use a decision matrix featuring three factors: seriousness of the crime (e.g., major, moderate, minor), duration of time since the crime occurred, and the number of convictions. It’s here that the Treasury Inspector General’s audit discovered some inconsistencies: when enrolled agents are also CPAs, the IRS will often not conduct an independent background check, instead relying on the state certification to verify an applicants’ character. This, according to TIGTA, “increases the risk of not detecting an applicant who, although licensed, may not be suitable to participate in an IRS program,” because according to the National Association of State Boards of Accountancy, “only 13 State Boards of Accountancy conduct criminal background checks on individuals who apply for a certified public accountant license in their State.”

IRS management has agreed that checks for all enrolled agents should include a criminal background check, continuous tax compliance checks, and checks to determine if the applicant is deceased, incarcerated, or on the Specially Designated Nationals list. The Service has plans to complete a risk assessment to address the risks associated with the inconsistencies between the E-File, acceptance agent, and enrolled agent programs. Whatever the outcome of that assessment, however, the vast majority of enrolled agents should remain unaffected: when TIGTA retrieved a statistically valid sample of 170 individuals accepted into the E-File, acceptance agent, and enrolled agent programs prior to Fiscal Year 2018, it found that none of the individuals engaged in a criminal activity that warranted removal from the program.

Ensuring that agents are fully vetted is extremely important as they hold the major responsibility of representing taxpayers and their interests to the IRS. The higher the standards are for enrolled agents; the more protection is afforded to those they represent.


Category: Blog, TIGTA, Tax Compliance