Specificity Needed in Powers of Attorney for Information Returns

Most practitioners are familiar with the Form 2848, Power of Attorney and Declaration of Representative. This form is signed by a taxpayer and designates an eligible person to represent the taxpayer before the IRS. IRS personnel will typically not provide information or otherwise discuss a taxpayer’s circumstances with a representative until they are provided with a Form 2848.

The Form requires a description of the matters for which the representation is authorized, including, where relevant, the type of tax involved, the federal tax form number, the specific year(s) or period(s) involved, and, in estate matters, the decedent's date of death. The portion of the form where this is done looks like this:

For a given year, a taxpayer will typically fill in the type of tax in the first column, Form 1040 if individual income tax is at issue in the second column, and the year at issue in the third (e.g., “2016”). You would think that if you filled in “1040,” then the IRS would be authorized to discuss with the representative all forms filed with or attached to the Form 1040. But you would be wrong, or at least so says the IRS.

In a recent Chief Counsel Advice, the IRS advised that such a Form 1040 would not be adequate to cover civil penalties relating to the nonfiling or incomplete filing of an international information return that was or should have been attached to the Form 1040. Thus, for example, the IRS will not discuss penalty issues with a representative relating to a Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, if the Form 2848 only listed Form Form 1120. The Advice is based on Reg. § 601.503(a)(6), which requires “a clear expression of the taxpayer's intention concerning the scope of the authority granted to the recognized representative.”

Is the IRS taking too narrow a reading? Maybe, but it is what is, and practitioners should endeavor to list all applicable information returns that may be relevant to the purpose of the Form 2848. It is not a disaster if the Form 2848 is too narrow since a new Form 2848 that covers the requisite forms can always be obtained and submitted. It is highly unlikely that a court will ever adjudicate this issue, so unless the IRS changes its mind it looks like taxpayers are stuck with this interpretation.

The Advice also notes that the designation of a Form 1040 or Form 1120 likewise does not give authorization to issues relating to information returns that are NOT attached to the income tax return.

What if the Form 2848 says “Form 1040” and the Description section says “Income, and all civil penalties?” In the past, this was allowable, but the Advice advises that changes in the instructions and the form require specificity such that discussions of tax, civil penalties, payment and interest can only be had as to the specific form listed.  What if the Description says “Form 1040, and all information returns required to be filed therewith?” No answer to that one yet.