IRS Power Of Attorney – What You Need To Know
In many instances, you will not want to represent yourself before the IRS, or even in some important financial situations. This is what giving someone ‘power of attorney’ is for.
While the legal ramifications are actually a little more complex, in essence, power of attorney (POA) means that someone else has the power to represent you – in a strict legal sense.
They will receive copies of notices, and have specific permission to handle financial issues on your behalf. They will also have access to important information like your employee identification number, your tax form number, your social security number, your federal tax return, and more.
In the United States, power of attorney is taken very seriously. The Internal Revenue Service will interface with this person directly, if that is what you choose.
This can be very important for serious tax matters, as this enrolled agent will likely be the preparer of your tax return.
What Is Financial Power Of Attorney?
There are a number of important economic issues that are covered by financial power of attorney. The most common examples are listed below.
- Tax filings
- Charity donations and philanthropy
- Social Security, unemployment, Medicare, and other government benefits
- Business affairs
- Insurance transactions
- Legal claims
You can give your enrolled agent more or less power, depending on how you list them in filing documents. You may not want to give someone complete control over all of your financial affairs, for example, unless you implicitly trust them.
What Is Medical Power Of Attorney?
Related to power of attorney for the IRS, but not the same exactly, power of attorney for medical issues gives someone else decision making power when you are incapacitated.
The most famous issue this covers is if you go into a coma. Whether or not to continue on with life support is one key decision that someone with power of attorney for medical situations would have to make.
We recommend retention of a trusted family member (or friend) for medical power of attorney, as it is entirely different than signing financial waivers or preparing tax returns. If it helps, you can think of putting down the name and address of your chosen person for medical power of attorney as a more advanced form of an emergency contact.
This is not a position to be taken lightly – it is a lot more than simply marking a checkbox on a form. You should trust your medical power of attorney with your life – and also trust that they will make the proper decisions on your behalf.
What Is CAF?
A CAF number (CAF stands for ‘centralized authorization file’) is a number that is given to you, the first time you file for POA, or tax information authorization. Similar to a social security number, it is used to track all of your issues with the IRS, specifically related to an attorney representing you.
Enrollment for POA indicates to the IRS that you will be giving someone else access to your tax return, as well as giving them access to your confidential tax information. The CAF system is a complex database of everyone’s information for important financial decisions and filings.
Just as you give an employer identification number on a tax return, you will sometimes need to list your CAF number on official forms. Another analogy would be a service provider for healthcare – you will need to have the proper documentation filed with a CAF number, just like you would need for your service provider to receive healthcare.
A CAF number is not quite as crucial as a social security number, but it is vitally important to have, if you want someone else to represent you in financial matters. A tax return is a legally binding document, and a family member or friend is not a good choice for POA here – you will want a qualified tax preparer to handle this part of your financial life.
Anyone who prepares your tax return will also have a preparer tax identification number (PTIN). This allows the Internal Revenue Service to properly track their handling of tax returns.
Selecting Someone To Give Power Of Attorney
Technically, someone only needs to be above the age of 18 to be given power of attorney. Often a CPA (or certified public accountant) is one type of candidate that may be chosen.
We do not recommend giving family members power of attorney, as they may have a subjective point of view. Usually an objecitve point of view is the best perspective offered on behalf of the taxpayer.
Despite this common sense, many people still choose family members for POA – or they list them as backup options. If you are married and filing a joint return, many taxpayers choose to give their spouse the power of attorney.
If you have switched POA, all your previous income tax returns will list the prior power of attorney. A new form will need to be filed, indicating your updated choice for POA, and another form will need to be filed listing the revocation of prior power.
Ending The Power Of Attorney
If you wish to end the power of attorney, you can do so at any time. A court can also cancel the POA, and it can also end if your representative is no longer able to do their job.
Another instance that is common is POA ending when a couple divorces. In this case, usually one of the partners had power of attorney.
If you die, POA will end. Responsibility for the decedent at that point, will go to the executor of the estate (whoever that may be) – this includes the handling of a will, and the dividing of your assets.
If you have specific questions about ending the power of attorney, go to IRS.gov. The United States is famously inflexible when it comes to making mistakes around your taxes or during legal matters – so the IRS will always be the final authority when it comes to serious legal (or financial) issues.
What About My Will?
Just as you would write your name and address down for a tax return, helping to make it legally binding – a will is another serious document, with a very specific use. You will have an executor of estate for life after death, however, not the same person as whoever has POA for your financial matters.
We recommend the retention of a qualifed professional to handle death and the dividing of your assets – especially if they are numerous in quantity. This person will receive copies of notices for the decedent, as well as specific permission to handle all the releveant matters at hand.
Declaration Of Representative (For The Internal Revenue Service)
“Declaration of Representative” is simply part of the formal title of Form 2848. The main purpose of this form is to allow an attorney to represent a client before the IRS.
An actuary is one popular choice for POA. This is because an actuary will be adept at analyzing the risk associated with financial decisions – which is a crucial skill when you are dealing with tax matters.
How Many Years Can IRS Form 2848 Cover?
A 2848 is an important tax form, and each form can cover only one taxable entity – and the years can be as many as are relevant to that entity. Utilizing power of attorney means you will be giving access to your most confidential tax information, like your social security number – so be sure you trust the attorney you have chosen as your preparer of these documents.
Tax matters are serious – and you don’t want to leave issues like these up to a friend or family member. A seasoned tax professional will know whether to ultilize a new form, a separate form, and exactly how much documentation might be needed for the Internal Revenue Service – all key areas necessary for filing a successful tax return.
What Is The Difference Between IRS Form 8821 And 2848?
Put simply, Form 2848 allows a tax professional to represent a client. Whereas IRS Form 8821 is only for authorization of tax information – it does not give power of attorney.
How Long Does It Take For IRS To Process 2848?
While it used to only take three days to process form 2848, the processing time for the Internal Revenue Service on this form is now closer to ten days. Staffing issues, as well as slowdown due to the coronavirus pandemic have all impacted the overall time it takes to sift through these forms.
Should I Give My CPA Power Of Attorney?
If you are just worried about your taxes in a normal situation, this should be fine. However, if you are worried about a criminal claim by the IRS, it is not advisable to give your CPA power of attorney.
You will want the full protection provided by attorney-client confidentiality. This requires hiring an attorney specifically designated for these kinds of issues – not a CPA.
How Do I Withdraw From IRS POA?
If you no longer want someone to have POA (or ‘power of attorney’) for your tax documents – simply have them write “withdraw” on the top of the first page of the POA form. Also make sure that this page is signed and dated properly.
What Is An Unenrolled Return Preparer?
An unenrolled return preparer is another unique wrinkle when it comes to the preparation of a tax return. This person would be someone who is not an attorney, but they have prepared and signed your tax return.
They will usually be paid, and may only represent you before IRS agents, and a few other authority figures. They do not have the the power of attorney.
IRS Power Of Attorney – Other Factors To Consider
Unless you are a tax attorney, it is often better to have a lawyer file on behalf of the taxpayer. While you may know your way around TurboTax, giving the power of attorney to a full-time employee of tax law is a much better solution for solving any tax issues you may have.
This also means you won’t have to deal with the IRS directly. You won’t have to give out your telephone number or fax number for the IRS to use, and if you’re married a tax attorney can eve file your joint return.
A tax professional will always know more than you will about specific use, the type of tax you may want to avoid (or pay), and will have better insight into your income tax return. While it can be tempting to file on your own, it is almost always a better idea to let a tax professional handle your tax return.
The Bottom Line – IRS Power Of Attorney
Whether you have multiple back tax years you need dealt with, a tax liability you want to avoid, specific acts that you want to minimize taxes on, or you just want to get the best taxpayer information – hiring a qualified tax professional is the best answer.
Just as you wouldn’t want to represent yourself in a court of law, you don’t want to represent yourself in front of the Internal Revenue Service. Tax matters are always best handled by a tax professional – not you.
A professional tax preparer will have numerous insights that can help you. Tax matters can quickly become complex, and the Internal Revenue Service is notoriously merciless when it comes to filing errors.
Even if your tax return is fairly basic, a seasoned tax preparer will usually be able to find numerous ways to save you money. This can be as simple as slightly altering your tax return in beneficial ways – or even dealing with the Internal Revenue Service directly.
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