How to Become a Professional Tax Preparer

by Michael on Oct 3, 2012 · 3 comments

Photo of 1040 Federal Income Tax Form

Have you ever thought about moonlighting as a paid tax preparer? Despite the seasonal nature of this work, there’s good money to be made by preparing tax returns.

While CPAs and attorneys can prepare federal individual tax returns and represent their clients before the IRS without passing any special tests, everyone else has to pass one of two tests.

One test is known as the “Special Enrollment Exam” and it leads to Enrolled Agent status. The other is known as the “Registered Tax Return Preparer Competency Test” and it leads to Registered Tax Return Preparer (RTRP) status.

Note that there are a couple of other classes of tax preparers, including “supervised preparers” and “non-1040 preparers” (details) but, for various reasons, I’m focusing here on Enrolled Agents and RTRPs.

So what’s the difference between an Enrolled Agent and an RTRP?

Enrolled Agents

According to official IRS guidance:

An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants (CPAs), 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.

In other words, Enrolled Agent status is a big deal. To achieve this status you’ll have to pass all three parts of the Special Enrollment Exam. Each of part consists of 100 questions, spans 3.5 hours, and costs $105 ($315 total). Topics include individual taxation, business taxation, representation, and ethics.

Once you become an Enrolled Agent, you have to complete 72 hours of continuing education every three years to maintain your status. Enrolled agents, like CPAs and attorneys, have unlimited practice rights — they can pretty much represent anyone and handle all tax matters.

More details are available here.

Registered Tax Return Preparers

According to official IRS guidance:

Registered Tax Return Preparers (RTRPs) have the right to prepare and sign tax returns and claims for refund. RTRPs also may represent clients before the IRS during audits of tax returns they prepare.

To achieve RTRP status, you have to pass an IRS test establishing “minimum competency.” The test includes 120 questions, spans 2.5 hours, and costs $116. Topics include the 1040 Form series and ethics.

Unlike Enrolled Agents, RTRPs have limited practice rights — they can deal with 1040 series returns but that’s about it. Once you become an RTRP, you have to complete 15 hours of continuing education annually to maintain your status.

More details are available here.

Tax prep training

Note that some tax prep outfits like H&R Block and Jackson Hewitt offer tax prep courses (for a fee, of course) but there are tons of study materials available. These include numerous Forms and Publications from the IRS as well as a variety of books and study guides (for example, here and here).

For the record, I looked over some of the sample questions from RTRP test on the IRS website and let’s just say that I wasn’t left with the feeling that someone passing this test would necessarily be capable of navigating complex tax situations.

1 Edward Antrobus October 3, 2012 at 7:43 am

I’ve known a couple people who prepare tax returns on the side, including my aunt. The funny part is that most of them then just use freely available tax software, which I think is a little dishonest. Most of the people I’ve seen who pay for someone else to do their return don’t do so because they don’t want to spend the time on it, but because they are worried about filling it out wrong or something similar and aren’t getting any better guidance than if they did it themselves.

2 booyaa October 4, 2012 at 3:03 pm

How much money can one make? I have been preparing taxes myself for past 7 years (much more than simple 1040) and quite confident of being knowledgeable enough to handle tax returns quite confidently.

3 Jacob @ iheartbudgets October 10, 2012 at 1:45 pm

I am an Enrolled Agent, and man were those exams tough. I used the Gleim Study Course as well as “Tax Mama” ‘s online course to pass. I’ve now coming up on my third year working part-time for a small CPA tax firm, and it’s pretty awesome.

You are right, Enrolled Agents are very tax heavy in their knowledge, and usually specialize in representing clients in audits. I have just focused mainly on Sch C clients and individual taxpayers, but audit representation definitely interests me.

Also, did you know that if you have worked as an IRS Agent for the previous 5 years, you can skip the exams and just apply?

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