Most people want to file their income tax return with the IRS, have it processed and receive their refund or pay any balance owing without further involvement with the agency. There are times, however, when you must seek help from someone else when dealing with the IRS. Before you appoint a third-party designee to offer assistance, think about what you would like this person or company to do on your behalf.
Function of a Third-Party Designee for Federal Tax
A third-party designee for federal tax purposes can be a person, company, organization or partnership. The designee is appointed by the taxpayer to communicate with the IRS on his behalf. There are two types of third-party designations you can grant regarding income tax. One type allows your designee to receive information from the IRS, and the other allows your designee to represent you in tax matters before the IRS.
Tax Information Authorization Appointee
A tax information authorization appointee can inspect or receive tax information relating to forms for a specific tax year or period. Use IRS Form 8821 Tax Information Authorization to name your appointee or appointees. Indicate on the form which types of tax information you want your appointee to access. Examples include information regarding income, estate, gift, payroll and employment tax matters.
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Power of Attorney and Declaration of Representative
When you give someone power of attorney, that person has authority to act on your behalf when communicating with the IRS. Fill out IRS Form 2848 Power of Attorney and Declaration of Representative to name one or more representatives. The directions on the form tell you to be very clear about the specific acts you are authorizing your representative to perform. Describe the type of tax matter, such as income, estate, payroll, civil penalty, the tax form involved if applicable, and the years or periods involved. Add any other specific acts you are authorizing the representative to take care of, such as:
- signing your income tax return
- accessing your IRS records through an intermediate search provider
- authorizing disclosure of tax information to other third parties
- substituting or adding other representatives
Specifically state whether there are any actions you do not want your representatives to take. For example, Form 2848 has a standard clause that bars a taxpayer’s representative from depositing electronic payments or checks in the taxpayer’s name into the representative’s bank account.
Tax Information Appointee or Power of Attorney Representative
The tax information appointee option allows the person you choose to receive your tax information and to inspect it. You would select this option if you are away from home for work or school, for example, and you want someone else to be able to access your tax file in your absence. It’s also an option for anyone who needs extra support and assistance with income tax matters. When considering whom to appoint as a third-party designee for income tax purposes, be sure that the person you choose is someone you trust implicitly. Don’t hesitate to get professional advice from a tax expert before making your decision.
The good news about the power of attorney option is that it includes all the responsibilities that go along with a tax information appointee, plus additional acts you specifically authorize your representative to do for you. Consider using a power of attorney if you are being audited or investigated by the IRS. The person you choose to act as your power of attorney representative can be a family member or a friend. You can also appoint an attorney, a certified public accountant or a retirement plan agent. If you own or operate a business, an officer of the company or a full-time employee can take on this role.
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