Taxpayers might not know when to use an IRS power of attorney appropriately, as well as the requirements, processes, and forms needed. Learn more about it here.
In this article:
- When the IRS Tax Issue or Concern Is Too Complex
- When the Taxpayer Is Incapacitated
- When the Taxpayer Does Not Have Enough Time
- When the Taxpayer Does Not Know How to Proceed Appropriately
Possible Situations That Might Require IRS Power of Attorney
What is a power of attorney? A legal document that authorizes an individual, called the agent or attorney-in-fact, to act on behalf of the person, called the principal, for any actions or matters regarding a specific area
1.When the IRS Tax Issue or Concern Is Too Complex
Tax is such a complex area; even the IRS can make mistakes. Sometimes, there are instances wherein a complex tax issue may need a POA for specialists to help the taxpayer, including:
- A tax audit. Tax audits take a lot of time and resources, and any unnecessary reply or innocent mistake can lead to more wasted time, making a professional with a POA immensely important to the tax audit preparation.
- Cases involving worker misclassification. The IRS treats worker misclassification as a high priority, with the IRS imposing very heavy fines and penalties.
- Any tax appeal since appealing tax debt as incorrect will need professional expertise, as the IRS typically spend a lot of time reviewing an appeal even if the volume of appeal requests grow by the day. Having a professional take the reins can increase the chances of the taxpayer noticing discrepancies.
- Applying for an Offer In Compromise requires calculating taxes appropriately to the level the IRS will accept, or else the OIC will simply be rejected by the IRS. Knowing how much to offer as well as pointing out a reasonable cause in a persuasive manner may need a trained specialist, and a POA is necessary if a taxpayer wants to employ an advocate.
- Requesting for a currently not collectible (CNC) status. Due to the IRS receiving thousands of CNC requests every year, having a specialist help and even draft the request for a taxpayer can make a huge difference.
There are other instances that a taxpayer might request for assistance from a POA: appearance in the tax court, being part of an IRS Form 4180 interview about the Trust Fund Recovery Penalty process, and others. If the tax matter requires reading pages and pages of regulations and reconciling numbers for tax returns, taxpayers may save both money and time by authorizing a professional through an IRS power of attorney.
2. When the Taxpayer Is Incapacitated
Incapacity happens when a taxpayer cannot perform the tasks he or she needs to do. Getting an IRS power of attorney due to this reason can be lengthy as the IRS has to review all paperwork sent by the current POA.
Since the IRS only accepts the Form 2848 as the appropriate power of attorney document, the assigned attorney-in-fact should submit the notarized power of attorney together with the form.
Examples of reasons for incapacity include:
- A mental status that affects decision-making,
- Hospitalization due to a medical status that prevents a taxpayer from signing (like arm surgery),
- Any other medical condition that prevents a taxpayer from understanding the tax issues.
Most of the time, an individual has a medical power of attorney which focuses on medical matters rather than taxes. However, having a financial or even a general power of attorney has a higher chance of getting a Form 2848 accepted by the IRS.
3. When the Taxpayer Does Not Have Enough Time
A lot of people lead busy lives, and dealing with a tax concern takes a big chunk from an individual’s schedule. There are just so many letters, notices, and forms that need to be filled out accurately that doing these tax processes personally may be detrimental to the taxpayer.
Some even just opt to hire professionals and give permission through Form 2848. Sometimes, it is cheaper to simply hire an expert, especially for individuals with a high net worth.
4. When the Taxpayer Does Not Know How to Proceed Appropriately
Ignorance of the law excuses no one, and taxpayers may be better off asking for professional help.
For example, there are penalties related to accuracy taxpayers may inadvertently make, which may have been avoided if they permitted a CPA or tax advocate to fill out the forms for them with an IRS power of attorney.
Tax court proceedings are very technical, and any layperson can easily make a mistake during this long process. However, the taxpayer must still personally participate in the proceedings, which makes the Form 2848 IRS power of attorney immensely relevant and useful for the taxpayer if they hire a tax advocate.
Why Get a Power of Attorney Specifically for the IRS?
Tax information demands security, both for the individual taxpayer and the IRS. The IRS cannot simply allow any entity or individual access to tax information.
However, some taxpayers may either be incapable of communicating with the IRS or are mandated to handle the finances of a dependent.
In order to access records and act on behalf of another taxpayer, an individual must apply for a power of attorney.
Most of the time, a taxpayer has a general power of attorney, where an individual has the authority to exercise any action on another’s behalf. On the other hand, a special or specific power of attorney authorizes an individual to perform actions on behalf of the principal for one specific area, like one SPOA for finances and one SPOA for medical decisions.
This distinction is of great importance since the special power of attorney typically carries more weight compared to general ones, at least in the eyes of the IRS. They will most likely accept the legal document you present for either case, but prefer to have their own paperwork filed: Form 2848 Power of Attorney and Declaration of Representative.
Who Can Legally Be an IRS Power of Attorney?
An important tip: According to the IRS, the representative or attorney-in-fact should be an individual authorized to appear and represent another individual’s tax matters to the IRS. While some taxpayers usually just ask a family member to receive or give out information, the IRS needs a professional for the more in-depth tax issues like calculating taxes and appearing in the tax court.
These professionals include:
- A taxpayer advocate or relief specialist,
- Any Certified Public Accountant (CPA),
- An attorney,
- Any enrolled agent registered with the IRS,
- A student lawyer,
- A student CPA,
- Actuaries registered with the IRS, and
- Any enrolled retirement plan agents.
The taxpayer can confirm if an individual has authorization by contacting the IRS. Just make sure to know how to talk to an IRS agent on the phone to ensure smooth, clear, and efficient time with the IRS.
An IRS power of attorney can help taxpayers free up needed time and resources to focus on other important activities. However, a taxpayer should still follow what their designated power of attorney is doing to ensure that things are going in the right direction.
Have you had to submit or apply for a power of attorney in the tax process? How did the power of attorney IRS process go for you? Share your experience in the comments section below.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.