Practicing Before the IRS

[Donanita]

If you prepare a return for a client and later the client brings in a letter from the IRS stating income that was not reported and you prepare a 1040X in answer to the letter are you considered practicing before the IRS by answering the letter.

[jainen]

Yes

Yes, according to the definition in Circular 230 practice before the IRS includes preparing any documents or writing any letters on behalf of a taxpayer. However, anybody can prepare tax returns and anybody who signs a return can represent the taxpayer if the return is questioned.

[jimmcg]

Practicing v. Preparing

I'll admit I have not read Circ 230 for a while and may be somewhat out of date but it has always been my understanding that a tax return preparer who is not authorized to practice before the Service is only authorized to answer direct questions from the Service re the tax return in question as opposed to actually representing (or petitioning for) the taxpayer before the Service. I agree this is somewhat of an ambiguous area here and hopefully SB 832 will provide some furthur clarification.

[S T]

Representation

I do believe regardless of whether you as a tax professional prepared the return or the amended return , the requirement is still to file a form 2848. Even with the designation box on the tax return of third party contact, I have had problems and have been asked for the form 2848, particularly if it has been longer than 12 months after the filing of the return.

It appears from my experience that IRS will only talk to you if you have a form 2848 on file!

One of the IRS reps advised me that the 3rd party designation or preparer designation on the tax return was only good for "12 months"(wherein the instructions for 2005 actually state "due date WITHOUT regard to extensions". I have "cajoled" my way into to have an IRS "rep" talk to me on the phone with the third party block checked. They were not really willing to divulge any information and talk about too much, but would accept information if I had that to offer, but those issues that I called about were minor, and I was the preparer of the return. Seems like the Third Party Designee is somewhat restricted!!.

So best effort is to obtain the form 2848, and fax so you can then talk to an IRS rep, or if you are signed up on e-servies and have a CAF number, handle through the e-services. I have had such good luck in resolving notice issues in less than 1 week.

Sandy

[S T]

Second Thought

Actually, since more notices are being issued ( I am a small practice of about 400 returns), I am now having more powers of attorney forms being signed to deal with those notices. Mostly the notices with unreported income, can't identify income, missing a form, unapplied ES payments, etc.

Seems like more and more of these each tax year!

On all business clients 1120-1120S,1065, 990 and payroll forms, etc I am automatically filing the power of attorney for 2 years prior and the maximum of 3 years. That way I am in the CAF system and can access the transcripts online and resolve issues within a matter of approx 1 week, rather than the 6-8 weeks by mail.

Sandy

[geekgirldany]

2848 Or 8821

I must of misread or was mislead somewhere down the this tax preparation road. I thought that starting in 2002 or 2003 if you wasn't an CPA, Attorney, or Enrolled Agent you could not file a Form 2848. But I just went to look at the form since Sandy brought it up. It does list that Unenrolled Preparers can file a 2848. For the past three years I have been filing 8821 in order to talk to the IRS about tax client records. When I had a client audited last year the examiner even told me that I had to do a 8821 because I am not a CPA or Enrolled Agent. I had prepared the clients returns for several years including the year audited.

I know I had always done a 2848 and it seem like the rules changed. So I started using the 8821. Am I wrong? Or maybe I misread it at sometime.

Goodness I'm glad this was brought up!

[S T]

Form 2848 vs 8821

Dany, see page 2 of the form 2848 instructions link http://www.irs.gov/pub/irs-pdf/i2848.pdf. "Unenrolled" preparer is someone other than attorney, CPA or Enrolled Agent .

An unerolled preparer is permitted to represent you only before customer service representatives, revenue agents and examination officers, with respect to an examination regarding the return that he/she prepared

So under these circumstances, yes, even if you are not an enrolled agent, CPA or attorney (notice I put EA first instead of last), if you prepared the return you should be able to represent the client under the form 2848.

There are more restrictions that follow the above quote, but they have to do with closing agreements, executing waivers, etc.

Sandy

[Black Bart]

2848 & 8821

I must of misread or was mislead somewhere down the this tax preparation road. I thought that starting in 2002 or 2003 if you wasn't an CPA, Attorney, or Enrolled Agent you could not file a Form 2848. But I just went to look at the form since Sandy brought it up. It does list that Unenrolled Preparers can file a 2848. For the past three years I have been filing 8821 in order to talk to the IRS about tax client records. When I had a client audited last year the examiner even told me that I had to do a 8821 because I am not a CPA or Enrolled Agent. I had prepared the clients returns for several years including the year audited.

I know I had always done a 2848 and it seem like the rules changed. So I started using the 8821. Am I wrong? Or maybe I misread it at sometime.

Goodness I'm glad this was brought up!

Like you, I was extremely interested in this subject (less so now since I got that EA card), because (1) I needed to get problems resolved (2) I was afraid some IRS rep would embarrass me in front of the client. But; no, you weren't/didn't/aren't misled, misread, comatose -- the rule was changed (more of Commissioner Everson's "tightening-up").

The agent at the audit was wrong -- since your client was being audited, you had the right to use the 2848. See category H "Unenrolled Return Preparer" at bottom of page two of that form -- "You must have prepared the return in question and the return must be under examination by the IRS." That pretty much says it all for the audit.

If not being audited, you'd use the 8821, the downside of which is, it allows IRS to receive information from you, but not to give any back to you and that effectively kills off your ability to fix problems. But here's the thing; many IRS reps don't know the rules themselves, have lots of discretion, and can generally do as they please -- their supervisors aren't paying much attention. Occasionally I call 800-829-1040 rather than the practitioner line to solve problems because I want to keep in touch with what the average taxpayer's experiencing. When I do, most IRS reps aren't aware of any changes at all; lots ask for a POA but nobody's ever asked me about form numbers. Different things work for different IRS clerks and they're all over the board on this -- some won't even talk to you about anything without a POA (one rep, absurdly, even told me she had to have a POA to look at a 1040 and see if the 3rd party box was checked), while others simply ask for "a POA." Some don't ask for anything at all. If you aren't worried about the fine points, you can just fill out a 2848 and send it to them -- I have and not a single one has ever been declined or even inquired about enrollment status.

Here's something I got off the IRS website:
UNENROLLED PREPARERS, FORM 2848, AND THE IRS.
Taxpayers may use form 2848, Power of Attorney and Declaration of Representative, to authorize another person to represent the taxpayer before the IRS. This person must be eligible to practice before the IRS but taxpayers have occasionally submitted the forms listing ineligible representatives. IRS practice has been to treat these invalid powers of attorney as tax information authorizations, which permit third parties to receive information about the taxpayer's account, but not to represent the taxpayer before the IRS. Beginning April 1 the IRS discontinued this practice and began rejecting forms 2848 listing an ineligible representative. The IRS took this step to clarify that taxpayers should use form 2848 for the sole purpose of authorizing an eligible person to represent them before the IRS and to discourage ineligible persons from using the form in attempting to represent taxpayers. As a result of this change in practice, questions have been raised regarding the role an unenrolled preparer may now play in submission to IRS.

Anyway, most IRS reps know they're supposed to "ask for a POA." But, that's all they know. The majority have never even heard of an 8821.

[jainen]

How does all this relate

How does all this relate to the family member signing a return for dear old Mom under a general power of attorney? Is that even allowed? Will the IRS talk to the person who signed the return?

[Donanita]

Disagree

Quote
If not being audited, you'd use the 8821, the downside of which is, it allows IRS to receive information from you, but not to give any back to you and that effectively kills off your ability to fix problems.


I filed Form 8821 this year and was able to get transcrips of the clients income from e-file services.So you can get information from the IRS with a 8821. Last year I filed Form 2848 and it was accepted and got the same transcripts but this year when I faxed it in and call I was told to file the 8821.

[jainen]

Anyone can GIVE info

Anyone can GIVE info to the IRS. Form 8821 authorizes the IRS to give info to you, but as these comments show the agents don't understand it.

An unenrolled preparer is not eligible to use Form 2848 unless the return is being examined, which I presume includes "letter audits" and the like. Generally an unenrolled preparer may face resistance unless the taxpayer is present.

The third party designator is only useful for questions about the actual filing of the return. It does not give access to taxpayer records and expires at the end of the year.

[geekgirldany]

Cleared Up

Thank you guys for clearing this up for me. Its great information to know!

[Black Bart]

Right stuff and real-world stuff

Quote
If not being audited, you'd use the 8821, the downside of which is, it allows IRS to receive information from you, but not to give any back to you and that effectively kills off your ability to fix problems.


I filed Form 8821 this year and was able to get transcrips of the clients income from e-file services.So you can get information from the IRS with a 8821. Last year I filed Form 2848 and it was accepted and got the same transcripts but this year when I faxed it in and call I was told to file the 8821.

Yeah, you're right and I was wrong about the 8821. It does also allow IRS to give information back to you.

However, in the real world, it doesn't alway work that way, as your experience in the second paragraph amply demonstrates -- it all depends on who you talk to or who's handling the case. One rep thinks an 8821 is just fine; another feels a 2848 is needed (or vice-versa). And jainen's statement (like the NYEA said: "...needs...some additional information") that "anyone can GIVE info to the IRS" doesn't always hold true -- again it depends on who you're talking to. Some IRS agents won't take any info that you furnish or even have a conversation at all to discuss anything about a client, period, unless you're holding a POA.

[OldJack]

Solution

The simple solution is get your EA or CPA if you are going to work in this profession.

[Donanita]

Working on it

The simple solution is get your EA or CPA if you are going to work in this profession.

Hope to take the test this fall.