Last week, I advised that my best tax advice ever was to open the mail from the IRS. I find that to be, for many taxpayers, the single hardest thing to do.
Of course, opening the mail isn’t always enough. Generally, the notice or letter advises you to take some sort of action, whether that’s send a copy of a check or receipt, make a payment or contact the IRS. With respect to the latter, that’s the sort of thing that stops many taxpayers dead in their tracks. They don’t want to have to communicate with the IRS in any way. The good news is that you don’t always have to: you can have your tax professional or other third party do it for you.
Before we go any further, you have to understand that the IRS has some pretty serious privacy rules. They won’t talk to just anybody about your tax account and even then, they are limited in what they can (and will) share with you or a third party.
There are a few basic options for allowing a third party to contact the IRS on your behalf:
1. Third Party Designee. If you want someone else – your tax preparer, a friend, a family member, or any other person – to be able to discuss your tax return with the IRS, you can designate that person directly on the return using the space provided just above the signature line.
The authorization is limited to the specific tax year and tax return that you’re signing. The designation will automatically end no later than the due date (without regard to extensions) for filing the next year’s tax return.
2. Tax Information Authorizations.
Remember, federal tax returns are private. There may be a situation when you want to authorize a third party to review your tax return information but don’t wish for them to represent you before the IRS (used, for example, in some administrative law situations). In that event, you can file a federal form 8821, Tax Information Authorization. This form is not currently available on the IRS website.
Similarly, if you want to allow a third party to view your tax history or tax transcript but not authorize them to represent you before the IRS (such as, for example, mortgage company requests to ensure that you’re compliant), you can file a federal form 4506T, Request for Tax Transcript of Tax Return (downloads as pdf), and note the authorization at line 5.
Be sure and read the fine print: The IRS has no control over what the third party does with the tax information. You should also complete lines 6 through 9 of the form to protect your privacy.
3. Notice Concerning Fiduciary Relationship. The IRS has a special form to use when a fiduciary is involved, the federal form 56, Notice Concerning Fiduciary Relationship (downloads as a pdf). Fiduciaries are folks such as trustees, executors, administrators, receivers and guardians who are legally allowed to act on behalf of taxpayer who is an entity (such as a trust or estate) or other person (such as someone who lacks capacity). It’s important to note that this is a bit different from merely representing the taxpayer; a fiduciary actually stands in the position of the taxpayer. Nonetheless, the form 56 must still spell out with some specificity which tax years and tax returns are covered by the authorization. And like the other authorizations, it may be terminated or revoked.
4. Power of Attorney. If you want someone else – your tax preparer, a friend, a family member or certain other persons – to be able to discuss tax matters with the IRS for a specific year or years, you can complete a federal form 2848, Power of Attorney and Declaration of Representative (downloads as a pdf).
A federal form 2848 is to authorize an individual to represent a taxpayer before the IRS. This is most commonly used for tax attorneys, CPAs and Enrolled Agents who are handling tax matters for you.
For tax pros who are familiar with the 2848, it’s worth pointing out that the forms have been recently updated. The new form includes a new designation for registered tax return preparers and the designations for student attorneys and student certified public accountants have been combined into one designation. Additionally, lawyers now have to include their license numbers in the jurisdiction of practice.
The powers granted to under the 2848 are fairly broad and unless specifically excluded on the form, include the right to receive and inspect confidential tax information and to perform all acts, including signing consents and waivers, that a taxpayer could do. Unless otherwise noted, however, it does not include the power to receive a check, substitute or add another representative or sign basic tax returns.
Forms 2848 can be terminated or revoked at any time by the taxpayer. Additionally, signing a new form 2848 revokes the old one unless you specifically say otherwise and attach one that you want to remain in effect.
The IRS claims that it will accept a power of attorney other than a federal form 2848 provided the document satisfies the requirements for a power of attorney. In most cases, this would include your General Durable Power of Attorney prepared by your attorney. I will say, however, that it has been my experience that using a power of attorney instead of the IRS form can be complicated and time consuming so as a rule, I tend to avoid those when possible.
So, now you know that there are lots of ways to have someone else help you out when it comes to talking with the IRS or accessing your tax account. With that in mind, here are a few golden rules of representation:
1. Authorizing someone to represent you does not relieve you of your tax obligations. This is the most important rule of all. You cannot simply just hand over your tax forms and assume it’s done. There’s still work to be done.
2. Think before you sign. Do your homework before you give anyone – from your dearest relative to the most highly recommended tax attorney – the right to access your tax information. Think about what you’re doing and why. What’s the ultimate goal? What is the third party doing for you that you cannot? And is that person the best person for the job? I am not going to tell you what to do but I will say that I rarely recommend authorizing family members to talk to the IRS on your behalf because I think it leads to a lot of awkward Thanksgiving dinners. I generally recommend finding a tax professional to help you out for the same reason that I go to a doctor when I have an illness.
3. Don’t have a misplaced sense of privacy. The IRS has lots of rules about how they guard your privacy. Your uncle or best friend doesn’t have to play by those rules. If you give a third party the power to review your private tax information, keep in mind that they may share your information with other people. Is it a rotten, terrible thing to do? Sure. Is it legal? Depending on who it is, probably (attorneys and other tax pros are held to different standards than your friends, family and even companies). And once the information is “out there”, it’s out there, like a bad Facebook status. You can’t take it back.
4. Stay involved. I get that you don’t want to talk to the IRS – that’s why you gave someone else the power to do that for you, right? But that doesn’t absolve you of the responsibility to follow-up. The liability is still yours (see #1). And those deadlines? Still there. Don’t just walk away after you sign an authorization. Follow-up with the third party. And if you don’t get answers, ask more questions. And if you still don’t get answers? I think you know what you have to do.
Every taxpayer is different. And how you respond (or don’t respond) to notices and letters from the IRS will be different. But you need to open your mail. And if you need a little bit of help responding, now you know how to authorize third parties to contact the IRS on your behalf. The rest is up to you.
There’s more to come – including how to find a tax pro and to read and understand your notices from IRS – as part of this series. Stay tuned!
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