When an individual finds themselves faced with an IRS tax debt, likely one of the first thoughts they may have is whether they need to obtain legal representation.
At the outset, it should be made clear that the IRS is more than willing to work with any third party toward the common goal of resolving your tax balance. That being said, keep in mind that there are no options available to any Power of Attorney that are not available to a taxpayer directly. The IRS will process your case and resolve the issue in the same way, whether we speak to you or your paid intermediary.
Of course, an accountant or attorney may be more familiar with the requirements of the IRS and may be able to assist you in the steps of an appeal. But again, if you owe, and especially if your debt has become public due a Notice of Federal Tax Lien filing, you will be inundated by companies that advertise such things as a “one-time settlement,” “pennies on the dollar,” or various guarantees to promptly remove wage garnishments and liens.
Not so. IRS policy does not change based on the credentials of a caller. Your case is not treated in the same way as one would be in the judicial system; a lawyer cannot mitigate your case or reduce the sentence just because of who they are. The IRS will identify what type of resolution you qualify for, not a third party, and will be happy to assist you in understanding your tax obligations.
But I digress. If you do obtain legal representation, you need to decide the scope of what they are going to be able to handle. Do you want this person to assist you in the filing of your tax returns or the preparation of various forms required by the IRS to analyze your financial ability to make repayment? Then no written Power of Attorney needs to be filed with the IRS.
However, if you desire to have your paid representative contact the IRS to negotiate on your behalf, then either a Form 2848, Power of Attorney and Declaration of Representative, or a Form 8821, Tax Information Authorization, will need to be signed and submitted prior to your third party making contact.
What are the differences in these forms? What do they allow one to do on your behalf?
Form 2848 is filed by a person who desires to represent you before the IRS. They act on your behalf; they essentially stand in for you in a legal capacity. They will be copied on all notices that are sent to you, if they elect to be.
In order to file the Form 2848, a person must carry one of the following credentials, which they must make known on the signed form:
Attorney: They must enter the state(s) under which they have been licensed to practice.
Certified Public Accountant: Again, they must be recognized by state credentials.
Enrolled Agent: This is a designation given directly by the IRS Office of Professional Responsibility. Unlike an attorney or CPE, who may have a broad legal background, an enrolled agent is someone who specializes in tax law, and has taken rigorous training under IRS oversight.
Officer or Full-Time Employee of the Taxpayer: For example, a President, Vice-President or Corporate Secretary of the taxpayer and or their business.
Family Member: Limited to your spouse, parent, child, brother, or sister. A family member is granted the ability to resolve your balance the same as a CPA or attorney would.
Enrolled Actuary or an Enrolled Retirement Plan Agent: Licensed by the Department of the Treasury and the Department of Labor. Their focus is on taxpayer pension plans and retirement issues.
Unenrolled Return Preparer. See below.
Student Attorney or Student CPA: Yikes…
Unenrolled Return Preparer
An unenrolled preparer is anyone not recognized as having the credentials of an attorney, CPA or any enrolled agent or actuary. They have been granted allowance by the IRS to prepare tax returns only.
According to the Form 2848 Instructions, page 1, “An unenrolled return preparer is permitted to represent you only before customer service representatives, revenue agents, and examination officers, with respect to an examination regarding the return he or she prepared.”
In other words, this person has a very limited scope of ability to represent you. They are restricted in representation to matters regarding the return(s) that they themselves prepared. Additionally the Form 2848 Instructions make it clear the unenrolled preparer cannot:
Represent a taxpayer before other offices of the IRS, such as Collection or Appeals.
Execute closing agreements; they cannot enter into in any kind of resolution on your behalf.
Extend the statutory period for tax assessments or collection of tax, nor can they execute waivers, claims for refund, or receive your refund checks.
If you have authorized one of the above individuals with the ability to represent you, then that is the person who should be contacting the IRS on your behalf. The IRS prefers to have clear direction as to the processing of your account. When taxpayers contact the IRS concurrently with their Power of Attorney just to determine the case status or to find out what their attorney is doing, it delays case action and can even lead to the account being undermined or “pulled” in different directions. If you are paying someone (quite a bit no doubt) to represent you, then let them.
However, if you are unhappy with your Power of Attorney, you are under no contractual obligation to retain them as your representative. You may remove them at any time (no matter what they say), by typing up a letter with your name, address and social security number, indicate your Power of Attorney’s name, the year or years they have been authorized to handle, and indicate you want to revoke their authorization. Fax your request to the Power of Attorney Unit, based on your state.
The Form 8821 is used by an individual who does not carry any of the credentials as outlined on the Form 2848. Essentially, anyone can sign the Form 8821 and call the IRS on your behalf. Many large tax resolution companies prefer to use 8821 designees to accomplish much of the work, and then the Power of Attorney will step in at the very end to authorize the resolution.
Be wary of hiring and paying an accountant, attorney or enrolled agent, only to have the bulk of the work farmed out to various 8821 designees. These individuals often lack the technical expertise, and your case likely will only get tenuous attention.
Form 8821 authorizes a third party to discuss your account, but not to resolve it. According to the Form 8821 Instructions, page 2, “Form 8821 does not authorize your appointee to advocate your position with respect to the federal tax laws; to execute waivers, consents, or closing agreements; or to otherwise represent you before the
IRS. If you want to authorize an individual to represent you, use Form 2848, Power of Attorney and Declaration of Representative.”
So be aware of the important distinctions between the Form 2848 and Form 8821 and educate yourself as to whom you have actually hired to resolve your tax issue.