Taking on the Power (Or Not)

For practitioners who assist taxpayers before the IRS, there are two alternatives that can be used when interacting with the IRS on a taxpayer’s behalf.   

The first alternative is Form 8821(Tax Information Authorization) which is a document filed by a taxpayer authorizing an individual, corporation, firm, organization or partnership to obtain tax information from the IRS relating to a tax return, including copies of notices, correspondence, and account transcripts. However, Form 8821 does not permit representation of the taxpayer before the IRS.     

The second is Form 2848 (Power of Attorney). Form 2848 also provides authorization to obtain and/or inspect confidential tax information. But more importantly, Form 2848 allows practitioners to represent taxpayers in an examination or collection proceeding in order to present and conduct arguments before the IRS.

Since anyone can be authorized under a Form 8821, this allows practitioners to utilize administrative personnel in gathering information from the IRS. Also, it allows that practitioner to gather information from the IRS without the responsibility associated with taking on the power of attorney for a taxpayer.  

On the other hand, Form 2848, with some exceptions, can be used only by persons who are enrolled to practice before the IRS. These enrolled persons include CPAs, enrolled agents and attorneys. Exceptions are persons representing an immediate family member, an employer or a taxpayer under examination whose return was prepared by the unenrolled person.

Practitioners should not take the filing of a power of attorney lightly. The power of attorney allows a reasonable person to believe you have accepted the responsibility for representation of the taxpayer in question. Whereas, the Tax Information Authorization indicates you are just gathering data.

Therefore, consideration should be given to not elevate the relationship to the level inherent in the power of attorney (Form 2848) until you are armed with complete information (through Form 8821) and have the prospective clients’ agreement to your terms of engagement, including payment for your services.

If you want to learn more about resolving tax problems, be sure to sign up for our series, “Dealing with the IRS” .