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Proposed regs drastically increase enrolled agent examination fee

Preamble to Prop Reg 01/25/2016, Prop Reg § 300.4

Proposed regs on Special Enrollment Examination User Fee for Enrolled Agents.

IRS has issued proposed regs that would raise the fee for taking the 3-part enrolled agent special enrollment examination from $11 to $99 per part (i.e., $297 for all three parts). This amount doesn’t include any fees charged by the administrator of the examination. The proposed regs are to be effective when finalized.

Background. Section 10.4(a) of Circular 230 authorizes IRS to grant status as enrolled agents to individuals who demonstrate special competence in tax matters by passing a written examination (the Enrolled Agent Special Enrollment Examination, or EA-SEE) administered by, or under the oversight of, IRS. These individuals must not have engaged in any conduct that would justify suspension or disbarment under Circular 230. There are currently approximately 55,600 enrolled agents.

After becoming enrolled, an enrolled agent must, as provided in Circular 230 § 10.6(d), renew enrollment every three years to maintain active enrollment and to be able to practice before IRS. To qualify for renewal, an enrolled agent must certify the completion of the continuing education requirements set out in Circular 230 § 10.6(e).

The EA-SEE is comprised of three parts, which are offered in a testing period that begins each May 1 and ends the last day of the following February. An applicant must pass all parts of the EA-SEE to be granted enrolled agent status through written examination. Starting in 2006, IRS engaged the services of a third-party contractor to develop and administer the EA-SEE.

The Independent Offices Appropriations Act (IOAA) of 1952 (31 U.S.C. 9701) authorizes agencies to prescribe regs that establish charges for services they provide, including user fees. In general, a user fee should be set at an amount that allows the agency to recover the full cost of providing a special service, unless the Office of Management and Budget grants an exception.

Because the opportunity to take the EA-SEE is a special benefit beyond those that accrue to the general public, IRS charges a user fee to take the examination. Individuals who take the EA-SEE are provided with an opportunity to demonstrate special competence in tax matters by passing a written examination and so satisfy one of the requirements for becoming an enrolled agent under Circular 230 § 10.4(a). The current user fee is $11 to take each part of the EA-SEE. The contractor who administers the EA-SEE also charges individuals taking the EA-SEE an additional fee for its services. For the May 2015 to February 2016 testing period, the contractor’s fee is $98 for each part of the EA-SEE.

Proposed regs. Proposed regs issued by IRS would raise the fee for taking the EA-SEE to $99 per part—i.e., the cost to the government for overseeing the development and administration of the examination (excluding any fees charged by the administrator of the examination). The proposed fee would more accurately accounts for the time and personnel necessary to oversee the development and administration of the EA-SEE and to ensure the contractor complies with the terms of its contract.

Increased costs incurred by IRS to implement the EA-SEE program require an increase in the EA-SEE user fee. The proposed user fee would recover the full cost of overseeing the program.

The increased costs are primarily attributable to:

1. The cost for background checks required under Publication 4812, “Contractor Security Controls,” for individuals working at the contractor’s testing centers increased by $270,000 per year;
2. IRS estimates that the contractor will administer 14,000 fewer parts of the EA-SEE per year than the estimated number used to calculate the $11 fee, and the total costs are therefore being recovered from fewer individuals; and
3. IRS’s costs of verifying the contractor’s compliance with the information technology security requirements necessary to protect the personally identifiable information of individuals taking the EA-SEE have increased because Publication 4812 has strengthened those requirements.

In addition, IRS’s original estimates of the cost to oversee the contract did not cover all the work IRS now performs. IRS costs for oversight include costs associated with:

…review and approval of materials used by the contractor in developing the EA-SEE;
…review of surveys of existing enrolled agents, which help to determine the topics to be covered in the EA-SEE;
…composition of potential EA-SEE questions in coordination with the contractor’s external tax law experts;
…Office of Chief Counsel review and revision of the potential questions for legal accuracy; and
…analysis of the answers and raw scores of a testing population to determine what should be a passing score.

Further, IRS personnel ensure the contractor’s compliance with its contract by reviewing the work of the contractor using an annual “Work Breakdown Structure”—a project management tool—and reviewing and verifying that the contractor is in compliance with its Quality Assurance Plan regarding customer satisfaction and accuracy. IRS incurs additional costs associated with resolution of test-related issues such as cheating incidents, appeals regarding scores, refund requests, and customer service complaints that have not been resolved at the contractor level.

References: For who is a tax return preparer, see FTC 2d/FIN ¶  S-1117; United States Tax Reporter ¶  77,014.24; TaxDesk ¶  867,002; TG ¶  71753. For standards of practice, see FTC 2d/FIN ¶  T-10900; United States Tax Reporter ¶  76,559.7658; TaxDesk ¶  867,008; TG ¶  71758.

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