This $900,000 Kansas City EA-practice sale is an illustrative composite about credentials, provider readiness, owner dependence, and transaction cash. No real practice, clients, seller, buyer, completed sale, or outcome is represented. Financial amounts, staffing costs, payment terms, and tax reserve are assumptions for this example.
EA-practice continuity test examines whether the proposed successor can deliver the acquired tax services, maintain appropriate provider readiness and records, and fund both qualified work and purchase obligations when owner-dependent tasks must change hands.
Which services and credentials does the model assume?
Assume $900,000 annual service fees from tax preparation, IRS representation, and related nonattest work. The seller is an EA, and the buyer proposes qualified coverage for the actual services; no CPA attest practice or automatic expansion of authority is assumed.
The valuation hub frames the financial review. IRS enrolled agent information describes EAs’ unrestricted taxpayer representation rights before the IRS. That federal representation scope does not itself establish authority for every state-regulated accounting service or entity arrangement.
Map actual services, jurisdictions, people, entities, and roles. Credentials and historic client relationships do not establish successor workload capacity or operational authority.
How does the earnings model replace owner-dependent work?
It pays for the seller’s continuing job under the buyer’s operation instead of treating recorded owner compensation as fully available investment return. Assume reported earnings before interest, taxes, depreciation, and amortization of $260,000 after seller compensation.
| Item | Assumed change | Running earnings |
|---|---|---|
| Reported earnings after recorded owner pay | Starting amount | $260,000 |
| Remove seller compensation | +$100,000 | $360,000 |
| Remove documented one-time expense | +$20,000 | $380,000 |
| Add replacement owner-role compensation | −$160,000 | $220,000 |
| Add recurring technology and administration | −$25,000 | $195,000 |
The $160,000 role budget covers assumed production, review, representation, relationships, and management duties; it is not a compensation benchmark. The buyer may perform some work, but the model still pays for the labor. The $25,000 costs cover distinct recurring needs beyond the reported base.
Support the one-time expense, its nonrecurrence, and any replacement obligation. A seller’s description alone does not establish sustainable $195,000 earnings.
How do price and opening funding reconcile?
Assume a $900,000 fixed asset price: $750,000 closing cash and a $150,000 seller note. There is no earnout, equity rollover, real-estate purchase, or separate balance adjustment in this simplified case.
Assume seller cash and historical receivables are excluded. The buyer pays $25,000 transaction costs and funds $125,000 opening operating reserve. Total uses are $1.05 million, including $150,000 noncash consideration. Cash uses are $900,000.
Assume $650,000 conventional lender borrowing, $250,000 buyer cash, and $150,000 seller credit. Sources total $1.05 million. Loan and buyer cash total $900,000, matching $750,000 closing price plus $150,000 costs and reserve.
The seller-financing definition explains the separate future-payment claim. The note is not current cash for buyer expenses, and the operating reserve is not another recurring annual expense. Actual borrowing and documents require lender review; balancing the illustration does not establish approval or program eligibility.
What are the modeled first-year debt payments?
They are approximately $139,307.10 across the lender loan and seller note under the selected terms. Both schedules must fit operating cash after qualified work is funded.
Assume the $650,000 lender loan carries a fixed 9% rate over 120 monthly payments. The monthly payment is approximately $8,233.93; annual payments are $98,807.10 using the unrounded monthly amount. These are hypothetical conventional terms, not a quote.
Assume the $150,000 note has 7% annual interest and five equal $30,000 annual principal payments, with interest on opening principal. First-year payment is $40,500. The next payments are $38,400, $36,300, $34,200, and $32,100 under the stated schedule.
Normalized $195,000 earnings less $139,307.10 first-year acquisition payments leave $55,692.90 before income taxes, capital spending, working-capital changes, and other obligations. This is a planning residual, not guaranteed cash available for distributions or a formal lender coverage conclusion.
The owner’s $160,000 labor compensation is already in the cost bridge. It should not be deducted again from that residual, nor should it be treated as free merely because the buyer performs the work.
Why must provider readiness be checked independently of the EA credential?
An individual credential and an electronic-filing provider arrangement answer different questions. The buyer must establish the actual entity and applicable IRS process before assuming the acquired operation can continue filing.
IRS EFIN frequently asked questions states that an EFIN is not transferable, including when a business is sold. Determine required applications or updates for the real structure and confirm readiness before relying on filing operations.
The PTIN and EFIN definition separates preparer and provider identifiers. Transferring software, equipment, or a password does not settle the actual buyer’s authorized use. Record dependencies, responsible people, status, and the effect on upcoming deadlines.
Review unresolved provider dependencies and proposed temporary arrangements with advisers. Seller availability alone does not establish readiness.
How should client information and introductions be handled?
Handle them through a reviewed purpose, recipient, and permitted-use process. A new owner needs client context, but purchase ownership and an NDA do not automatically answer every disclosure question.
The IRS Section 7216 information center identifies restrictions and relevant rules for uses and disclosures of tax return information. Qualified advisers should determine applicable exceptions, consent requirements, and other obligations for the proposed diligence and handoff.
Map introductions, records, open representation matters, tax deadlines, and responsible successor contacts. Preserve client choices and record unresolved concerns. A broad sale announcement is not evidence that every engagement, file, and professional responsibility has transferred properly.
The transition-agreement definition connects seller assistance to actual tasks and limits. The buyer should request enough authorized context to continue work while avoiding an assumption that the seller remains the permanent backup owner.
What do seller receipts and a qualified-coverage downside show?
They show different cash perspectives: the seller’s current receipts and the buyer’s vulnerability to extra professional costs. Neither should be inferred from the headline price alone.
Assume $40,000 seller debt payoff and $20,000 seller costs paid from $750,000 purchase cash. Net closing cash is $690,000 before taxes and other obligations. A hypothetical $150,000 tax reserve leaves $540,000 currently undesignated cash, plus the separate $150,000 note claim.
That reserve is not a calculated federal, Missouri, or Kansas tax liability. Actual structure, assets, basis, allocation, interest, reporting, and payment timing require qualified tax review. The model does not determine the relevant jurisdictions or installment treatment.
The paid seller debt does not remain in buyer annual payments. A different debt-assumption agreement would require revised schedules; subtracting the same $40,000 again would distort this example.
For a separate downside, assume $60,000 additional interim qualified coverage in year one while the budgeted $160,000 owner-role compensation continues. The extra work is beyond the base role cost, not a replacement double count. Earnings fall to $135,000, creating a $4,307.10 shortfall after the unchanged debt payments and before other needs.
The extra cost is illustrative, not a forecast of illness, departure, or staffing rates. Test backup skills, availability, task coverage, duration, and supervision with real evidence. Reserve may fund a temporary gap, but recurring replacement needs require a supportable revised operating model.
What evidence should precede a real purchase decision?
Verify credentials, provider readiness, role coverage, funding, and permitted handoff together before commitment.
- Map actual services. Confirm credentials, jurisdictions, entity responsibilities, and qualified coverage for the acquired work.
- Validate recurring earnings. Support fees, adjustments, replacement labor, technology, and administrative needs.
- Establish provider readiness. Resolve required applications or updates and operating dependencies before critical service events.
- Verify cash and obligations. Confirm real consideration, lender and note terms, buyer cash, reserve, seller payoff, fees, and tax review.
- Complete a permitted handoff. Assign introductions, file access, open matters, transition limits, and qualified backup.
A few common questions
What else should you know?
Does this case describe a real Kansas City EA sale?
No. It is an illustrative composite with no named business, clients, or actual outcome. Price, fees, staffing, financing, and reserve are assumed. Use its reconciliations to identify questions requiring proof, then assess a real acquisition from verified records, professional review, and the actual proposed service and transaction structure.
Does an EA credential automatically transfer the seller’s EFIN?
No. The credential concerns the individual’s IRS representation scope, while EFIN readiness concerns the authorized electronic-filing provider. IRS guidance states the EFIN is not transferable in a business sale. Determine required applications or updates for the actual acquiring entity and establish readiness separately from credentials, software, and equipment.
Is the additional coverage sensitivity counting owner labor twice?
The base includes $160,000 owner-role compensation. The separate sensitivity assumes that compensation continues while another $60,000 funds additional interim qualified coverage beyond the base. If actual replacement removes another cost, revise the bridge. The illustration intentionally tests an incremental burden, not a universal rule for every owner absence.
Does the $150,000 tax reserve establish actual sale taxes?
No. It is a selected cash-planning assumption. Actual obligations depend on entity, assets, basis, allocation, payment timing, interest, jurisdictions, and reporting requirements. Qualified advisers must evaluate those facts. The model does not calculate gain or determine federal, Missouri, Kansas, or installment-sale treatment from the geographic label alone.
Which sources support this guide?
Primary rules and guidance support the factual statements in this article. The worked examples and decision frameworks are original educational analysis.
- Enrolled agent information — Internal Revenue Service
- FAQs about electronic filing identification numbers — Internal Revenue Service
- Section 7216 information center — Internal Revenue Service