The Third Party Designee box is a relatively new feature on tax returns (I said “relatively” – clearly, I’m dating myself on this one). It’s also one of the most confusing because so many taxpayers don’t know exactly what they’re designating a third party for… In fact, many of my clients are in a mild panic when they notice their tax preparers auto-checking the box because they think it gives the preparer too much power/information when it comes to their own finances. Don’t freak out… you’re not signing over the right to sell your house or anything so dramatic. But you are giving the designee some fairly important power.
When you check the box, you give the IRS the right to discuss with the designated third party any information that is missing from your return; you’re also allowing the third party to respond to notices about math errors and offsets. Checking the box also allows the third party to receive copies of notices or transcripts related to your return but it does not give them the right to bind you to any agreements.
With respect to refunds, checking the box means that your third-party designee can call the IRS for information about your return or the status of your refund. However, you’re not giving the third party the right to receive your refund.
It can be a helpful tool if you want someone else to handle your tax matters. On some level, it’s what you’re paying for. However, I don’t think the box should be auto-checked: your tax preparer should ask you whether you want to consent. Springing it on you on the day that you need to sign and mail your return isn’t very professional, in my humble opinion. If your preparer doesn’t ask you about the box, ask him or her if you notice that it’s checked.
Also, keep in mind that tax preparers aren’t the only ones that can be designated. You can also designate a friend, family member, or any other person you want to discuss the return with the IRS. I’m not sure why you want to do that as a rule (sure, it makes sense in some situations, as when you’re out of the country) but it’s your prerogative.
The authorization for a third party designee automatically ends on the due date (not counting extensions) for filing the next year’s tax return. So, for your 2010 tax return, the designation ends on April 17, 2012, which marks the deadline for filing your 2011 tax return. If you want the authorization to end earlier, you must send a written statement of revocation to the IRS Center at the address where you filed your return. The statement must include a clear revocation of the authority of the third party designee and information identifying the tax return in question; it must be signed and dated.
The third party designee authorization should not be confused with a federal form 2848, Power of Attorney and Declaration of Representative (downloads as a pdf). A form 2848 allows a qualified individual to represent you before the IRS. This includes not only contacting the IRS on your behalf, but also representation at a conference with the IRS and preparing and filing a written response to inquiries made by the IRS.
I’ve stressed before that I think it’s important to have professionals at the ready to back you up if you need help, whether that’s merely preparing your return or representing you before the IRS. Be informed about what you’re empowering your agents to do… Remember, your designee or agent is acting on your behalf. Choose wisely.
