Handling Your Taxes With a Power of Attorney

A Power of Attorney, often abbreviated as POA, is a legal document that grants a trusted individual the authority to manage financial and legal matters on another person’s behalf. The person granting the authority is known as the principal, while the individual receiving the authority is called the agent or attorney-in-fact. This arrangement is particularly useful when the principal is unable or simply unavailable to handle their own affairs due to illness, absence, or other circumstances.

One of the significant areas where a POA can be applied is in the management of tax obligations. Navigating the requirements of the Internal Revenue Service (IRS) can be complex, and a POA allows a designated agent to step in and handle these duties. This can range from routine filings to more complex interactions with the tax agency.

Authority Granted for Tax Matters

A properly constructed power of attorney for tax matters grants an agent a wide array of powers to represent the principal before the IRS. The scope of an agent’s authority extends to direct communication with the IRS. This means the agent can speak to IRS representatives, respond to notices, and receive confidential tax information, including copies of tax records and correspondence. In more involved situations, such as an audit or an appeals process, the designated representative can advocate for the principal, presenting arguments and negotiating settlements.

The agent operates under a fiduciary duty, which legally requires them to act in the principal’s best interest. Despite the authority granted to the agent, the principal remains legally responsible for the accuracy of the return and for the payment of any tax, interest, or penalties that are ultimately due. Granting power of attorney does not transfer this underlying liability from the taxpayer to their representative.

There is a distinction between a general durable power of attorney and a specific tax power of attorney. A general durable POA is a broad document, often created for estate planning, that can remain in effect if the principal becomes incapacitated. While this may be sufficient for some state tax matters, for federal tax issues, the IRS has specific requirements and forms that must be completed to recognize the agent’s authority.

Required IRS Authorization Forms

To formally grant someone the authority to represent you before the IRS, specific documentation is required. The primary document for this purpose is IRS Form 2848, Power of Attorney and Declaration of Representative. This form is the standard method used to authorize an eligible individual, such as an attorney, Certified Public Accountant (CPA), or an enrolled agent, to act on your behalf in tax matters. It allows your representative to perform actions like signing agreements and consents with the IRS.

Completing Form 2848 requires detailed information from both the taxpayer and the designated representative. The taxpayer section needs the principal’s full name, address, and Taxpayer Identification Number (TIN). The representative’s section requires their name, address, and credentials that qualify them to practice before the IRS. A part of the form is specifying the exact tax matters the agent is authorized to handle, which includes the type of tax, the form number, and the specific years or periods covered.

The official Form 2848 can be downloaded directly from the IRS website, and it is important to use the most current version of the form to avoid processing delays.

For situations where a taxpayer only wants to allow someone to review their confidential tax information but not represent them, the IRS provides Form 8821, Tax Information Authorization. This form has a more limited scope, permitting the designated person to inspect and receive tax documents but not to speak to the IRS on the taxpayer’s behalf, sign returns, or negotiate settlements. This makes Form 8821 a suitable choice when a mortgage lender needs to verify income by reviewing past tax returns.

How to File Authorization with the IRS

Once Form 2848 has been accurately and completely filled out, the next step is to file it with the IRS. The primary methods for submission are by mail or fax. The correct mailing address or fax number depends on the principal’s address and is specified in the instructions for Form 2848.

Some tax professionals with a Secure Access account may have the option to submit the form online, which can lead to faster processing. For most individuals filing on their own, however, mail or fax remains the standard procedure.

Upon receiving the Form 2848, the IRS processes the document and records the authorization in its Centralized Authorization File (CAF) system. The CAF is a database that allows IRS employees to verify that a representative is authorized to speak and act on a taxpayer’s behalf. Each representative is assigned a unique nine-digit CAF number, which is used for tracking all their authorizations. Once the information is in the CAF system, the designated agent can begin to interact with the IRS regarding the specific tax matters outlined in the form.

Signing a Tax Return as a Power of Attorney

The authority to sign a tax return on behalf of a principal cannot be granted through IRS Form 2848. Instead, this power must be explicitly granted in a separate general or durable power of attorney document. The IRS permits an agent to sign a return only under specific circumstances, such as when the principal is unable to sign due to disease or injury, or because they have been continuously outside of the United States for at least 60 days prior to the return’s due date.

When an agent needs to sign a tax return for the principal, there is a specific format that must be followed to ensure the signature is valid. The agent should sign the principal’s name, followed by their own name and the designation “Attorney-in-Fact.” For example, the signature line would read: “John Doe by Jane Smith, Attorney-in-Fact.”

For a traditional paper-filed tax return, a copy of the power of attorney document that grants the agent the specific authority to sign tax returns must be attached to the return. The process for electronically filed returns is slightly different. Most professional tax preparation software provides a specific workflow for returns being signed by a power of attorney. This usually involves the agent signing the relevant e-file authorization form and attaching a PDF copy of the POA document to the electronic submission.