Decisions — Power

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As a tax preparer, you’re familiar with Form 2848, Power of Attorney and Declaration of Representative. You ask clients to sign Form 2848 to give you authorization to do what’s typically limited to the taxpayer, such as receiving and inspecting confidential tax information and signing agreements or other documents.

Compared to other tax forms, the 2848 seems simple, even when accompanied by seven pages of instructions. But a recent Office of Chief Counsel memo (number 201736021) says those instructions are not paragons of clarity on some issues.

For example, the IRS considered whether penalties associated with forms that are or should be attached to a certain “parent” tax return are within the scope of representation if line 3 of the Form 2848 lists only the parent form.

Here is the relevant portion of Form 2848.

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Here are the instructions for those lines.

Line 3. Acts Authorized

In order for the power of attorney to be valid, you must enter the description of the matter, the tax form number (where applicable), and the year(s) or period(s) (where applicable). For example, you may list “Income, 1040” for calendar year “2010” and “Excise, 720” for “2010” (this entry covers all quarters in 2010). You may list consecutive multiple years or a series of inclusive periods, including quarterly periods, by using “through,” “thru,” or a hyphen. For example, “2008 thru 2010” or “2nd 2009 – 3rd 2010.” For fiscal years, enter the ending year and month, using the YYYYMM format.

Do not use a general reference such as “All years,” “All periods,” or “All taxes.” The IRS will return any power of attorney with a general reference. Representation only applies for the years or periods listed on line 3. List on line 3 only tax forms directly related to the taxpayer listed on line 1.

You may list the current year/period and any tax years or periods that have already ended as of the date you sign the power of attorney. You may also list future tax years or periods. However, the IRS will not record on the CAF system future tax years or periods listed that exceed 3 years from December 31 of the year that the IRS receives the power of attorney. You must enter the description of the matter, the tax form number, and the future year(s) or period(s). If the matter relates to estate tax, enter the date of the decedent’s death instead of the year or period. If the matter relates to an employee plan, include the plan number in the description of the matter.

If the matter is not a tax matter, or if the tax form number or years or periods do not apply to the matter (for example, representation for a penalty or filing a ruling request or a determination letter, or Application for Award for Original Information under section 7623, Closing Agreement on Final Determination Covering Specific Instructions for Form 2848 (Rev. 12-2015) Classification Settlement Program (CSP), Form 8952, Application for Voluntary Classification Settlement Program (VCSP), or FOIA), specifically describe the matter to which the power of attorney pertains (including, if applicable, the name of the employee benefit plan) and enter “Not Applicable” in the appropriate column(s).

Civil penalty representation (including the trust fund recovery penalty) and representation for certain healthcare-related payments. Unless you specifically provide otherwise on line 5b, your authorization of tax matters on line 3 includes representation for penalties, payments, and interest related to a specific tax return.

However, if the penalty or payment is not related to a return, you must enter “Civil Penalty,” “Section 4980H Shared Responsibility Payment,” or otherwise describe the specific penalty or payment for which you are authorizing representation in the “Description of Matter” column on line 3.

Example 1. Joann prepares Form 2848 authorizing Margaret to represent her before the IRS in connection with the examination of her 2015 and 2016 Forms 1040. Margaret is authorized to represent Joann with respect to the accuracy-related penalty and the Section 5000A shared responsibility payment that the revenue agent is proposing for the 2015 tax year.

Example 2. Diana authorizes John to represent her in connection with her Forms 941 and W-2 for 2012. John is authorized to represent her in connection with the penalty for failure to file Forms W-2 that the revenue agent is proposing for 2012.

Example 3. Diana only authorizes John to represent her in connection with her Form 1040 for 2012. John is not authorized to represent Diana when the revenue agent proposes a trust fund recovery penalty against her in connection with the employment taxes owed by her closely-held corporation.

If you are authorizing your representative to represent you only with respect to penalties and interest due on the penalties, enter “Civil Penalty” in the “Description of Matter” column and the year(s) or period(s) to which the penalty applies in the “Year(s) or Period(s)” column. Enter “Not Applicable” in the “Tax Form Number” column.

You do not have to enter the specific penalty.

Note. If the taxpayer is subject to penalties related to an individual retirement account (IRA) (for example, a penalty for excess contributions), enter “IRA Civil Penalty” on line 3.

Line 4. Specific Use Not Recorded on CAF—(instructions omitted)

Line 5a. Additional Acts Authorized

Use line 5a to modify the acts that your named representative(s) can perform. Check the box for the additional acts authorized and provide details in the space provided (if applicable).

 

Office of Chief Counsel Memo 201736021 covers three issues related to international information returns.

Note to preparers: While these three issues are fact specific, care should be taken when filling out Form 2848 to include references that tailor the granted powers to the taxpayer’s situation.

 

Background. International information returns filed with the IRS include Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations; Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation; and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.

In some cases, the international information returns should be filed attached to an income tax return. An example is Form 5471, which must be filed with the filer’s income tax return.

In other cases, the international information returns should not be filed with the filer’s income tax return, but should be filed elsewhere. An example is Form 3520, which is filed with the IRS service center in Utah.

When an international information return is incomplete when filed, is filed late, or is not filed at all, a civil penalty may be assessed. The taxpayer may have already designated a representative on Form 2848, Power of Attorney and Declaration of Representative, for a certain tax return, but not specifically with respect to the international information return that has given rise to penalties. The taxpayer may want an already designated representative to discuss the applicable penalty with the IRS. Or an examiner may, during an audit of a taxpayer who has designated a representative for a specified tax return and a specific year, discover that the taxpayer may be liable for a penalty related to an international information return for the same tax year as the one in the Form 2848.

1.

After your review of Form 2848 instructions, do you think that when line 3 of Form 2848 lists an income tax return to which an international information return must be attached, the Form 2848 also covers the civil penalty associated with that international information return, allowing the IRS to discuss the penalty with the designated representative?

(The IRS example used Form 1120 as the income tax return listed on line 3, and Form 5471 as the international information return that was not listed on Form 2848.)

 

WHAT WOULD YOU DECIDE?

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THE DECISION

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2.

Line 3 of a Form 2848 lists an income tax return to which an international information return is not required to be attached. Does the Form 2848 cover the civil penalty associated with that international information return, allowing the IRS to discuss the penalty with the designated representative?

 

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3.

A representative designated on a Form 2848 prepared a Form 1120, U.S. Corporation Income Tax Return, and a Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The taxpayer subsequently submits a Form 2848 designating a different representative and listing Form 5471 and not Form 1120. May the IRS discuss with the second representative the penalties associated with both Forms 1120 and 5471 or only those penalties associated with Form 5471?

 

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***

Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

***

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Sorry, wrong answer :(
Right answer!

No. Forms 2848 that list only a specific return cover representation for penalties, payments, and interest related to only to that specific tax return, and not to other returns, regardless of whether the other returns are attached to the return specified in the Form 2848.

A Form 2848 that identifies an income tax return, such as Form 1120 or Form 1040, to which an international information return would be attached does not also cover the civil penalty associated with that international information return.

Forms 2848 that only list a specific tax return will cover representation for penalties, payments and interest related only to that specific tax return, not to other returns, regardless of whether the international information return was attached to the tax return specified in the Form 2848 when that return was filed.

Historically, taxpayers who wished to authorize a representative to represent them with respect to penalties unrelated to a tax return merely had to list “civil penalties” on line 3 of the Form 2848 as a matter for which they were granting authority. The 2012 instructions to Form 2848 provided that neither the tax form number nor the specific penalty had to be entered as the “Description of Matter” on line 3 of Form 2848.

In 2014, however, the IRS revised both the instructions to Form 2848 and the format of lines 3 and 5 on the form itself, which are the lines on which the taxpayer specifies which specific acts it is authorizing the representative to perform.

Under current instructions, a person who is designated on the Form 2848 with respect to a tax return may represent the taxpayer only regarding the tax, civil penalties, payments and interest related to that specific tax return listed on the Form 2848 unless otherwise provided on line 5b.

In the scenario presented, Form 1120 is the specific tax return listed on line 3 of Form 2848. Form 5471 is not listed or otherwise mentioned.

Although an argument could be fashioned that penalties arising in connection with the Form 5471 are related to the Form 1120 because the Form 5471 must be attached to a Form 1120 in order to file the Form 5471, the reality is that many international information returns may be attached to or related to a Form 1120. Without a specific description of the penalty involved, it would be difficult for the IRS to determine exactly the scope of the taxpayer’s authorization.

We thus believe the intent of the 2014 revisions is to require the specific penalty to be listed on Form 2848 for representation to be authorized with respect to those penalties unrelated to the ones related to the Form 1120 itself: the instructions require the taxpayer to “describe the specific penalty … for which [she is] authorizing representation in the ‘Description of Matter’.” Instructions for Form 2848, p. 4 (Rev. 12-2015) (emphasis added).

This requirement of specificity is in keeping with the requirements of section 601.503(a)(6) of the Statement of Procedural Rules, which requires “a clear expression of the taxpayer’s intention concerning the scope of the authority granted to the recognized representative.”

Furthermore, precise specificity is important because Forms 2848 for civil penalty issues are recorded on the Central Authorization File (CAF), and this information assists the CAF Unit in processing these forms.

Accordingly, we conclude that the IRS is not allowed to discuss the civil penalty for failure to file the Form 5471 with the representative designated on the Form 2848 if line 3 lists only “Income, Form 1120,” and the calendar year.

Sorry, wrong answer :(
Right answer!

No. Forms 2848 that only list a specific return cover representation for penalties, payments, and interest related only to that specific tax return, and not to other returns that may be filed separately.

A Form 2848 that identifies an income tax return to which an international information return is not required to be attached when the Form 1040 is filed, does not give cover authorization to discuss penalties associated with the international information return.

For example, on Form 2848, line 3, Acts Authorized, a taxpayer lists “Income, Form 1040,” and the calendar year. During the examination of the taxpayer’s Form 1040, the IRS is considering whether to assert the civil penalty under internal revenue code section 6677 for failure to file Form 3520, and international information return.

The designated representative is not authorized to discuss, and the IRS may not discuss with the representative, the civil penalty associated with the Form 3520.

The analysis under Issue 1, above, applies for the same reasons.

Sorry, wrong answer :(
Right answer!

The IRS may discuss with the second representative only those penalties associated with Form 5471.

A representative who prepared for a taxpayer both the Form 1120 and the Form 5471 for a taxable year is designated on a Form 2848 to represent that taxpayer for those two forms for that taxable year.

The taxpayer’s subsequently submitted Form 2848 naming a different representative and listing only the Form 5471—and not Form 1120—gives the second representative the authorization to discuss only those penalties associated with Form 5471.

The IRS, therefore, may not discuss with the second representative issues involving the taxpayer’s Form 1120 or penalties associated with the taxpayer’s Form 1120. The same analysis discussed above applies here.