Last week I taught a 2 hour class on rollover business startups (ROBS) to the NW chapter of enrolled agents. I also learned a few things about enrolled agents and something about ROBS.
Who Are Enrolled Agents (EA)
According to the IRS, 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. Learn more about enrolled agents in Treasury Department Circular 230.
How Can Enrolled Agents Help a ROBS client
What is the difference between a CPA, an EA and an attorney? People love attorney jokes. Substitute “CPA” or “enrolled agent” into an attorney joke and the jokes are not funny. You meet an EA for the first time and ask “what do you do?” Answer – I represent taxpayers before the IRS. Wow! That’s awesome! We need that! EAs are like super heroes. Who jokes about that?
Although I am allowed to represent people to the IRS, I don’t. Never needed to, other than the occasional response to a letter. “Dear Taxpayer, What in the internal revenue code’s (i.e. God’s) name are you doing? Love, the IRS.” My response, “Dear IRS, We did X, which is authorized by Y. Love you more! Frank Selden.” When we actually do X, which is actually authorized by Y, the IRS is pleased, and the client breathes a sigh of relief. Some tax cases went against the taxpayer because they claimed to have done X (we were only creating a ROBS setup) but what they actually did was P (something other than X) and they lose. The EAs recognized the importance of needing to know how to spot all of the ROBS components so that they will win their case if the IRS challenges it. A rollover business startup is not a tax issue when done correctly.
The EAs probably won’t create a ROBS setup, don’t administer 401K plans, but they are experts in representing clients to the IRS and preparing returns. In the past I have not referred people to enrolled agents, primarily because I did not know any and was not clear on what they did. I now believe that an EA who understands a proper ROBS setup is a great resource for any business owner.
I mingled through the crowd ahead of the seminar, introduced myself. I asked everyone I met “what is your number one question about ROBS?” Most stated that they knew nothing about ROBS which is why they wanted to attend. A few did pose questions. “I heard that you can’t guarantee loans”, “I heard that clients can’t take a salary”, etc. They asked excellent questions. Here was my first surprise… Most of their pre-seminar questions pertained to self-directed IRAs. They did not know the difference.
I modified the seminar slightly to highlight the differences between ROBS and SDIRAs. By the end of the seminar they understood. They got it. My second surprise… I felt better about the audience’s level of understanding with my first audience of EAs than about most audiences of attorneys and CPAs in the past.
If you representation to the IRS, find an enrolled agent. A good place to look is their National Association. If you find an EA you like, and the EA does not know much about ROBS, put them in contact with me. I am confident that I can get them up to speed quickly.
If you want to create a ROBS, and want to get it Done Right, let’s connect.