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What You Need to Know About Third-Party Tax Authorizations

Published on: Published in: Taxes

Article Highlights:

  • Power of Attorney
  • Tax Information Authorization
  • Third Party Designee
  • Oral Disclosure

In the complex world of financial and legal matters, there are times when you may need to authorize a third party to represent you when dealing with the IRS. A third-party representation can be a valuable tool. But how do you navigate the different types of authorizations?

You can grant a third party authorization to help you with federal tax matters. The third party can be a family member or friend, a tax professional, attorney or business associate, depending on the authorization. There are different types of third-party authorizations:

Power of Attorney – When dealing with the IRS, a specific form, Form 2848 – Power of Attorney and Declaration of Representative is used to authorize an individual to represent you before the IRS. This form allows the individual you authorize to receive confidential tax information and act on your behalf in IRS matters.

Your representative must be an individual eligible to practice before the IRS. This includes:

  • Attorneys, certified public accountants (CPAs) and enrolled agents. 
  • Enrolled retirement plan agents and enrolled actuaries with respect to Internal Revenue Code sections described in Circular 230.
  • Unenrolled return preparers, family members, employees and students under special and limited circumstances.

A Power of Attorney stays in effect until you revoke the authorization, or your representative withdraws from it. When you revoke a Power of Attorney, your representative will no longer receive your confidential tax information or be able to represent you before the IRS for the matters and periods listed in the authorization.

There are 2 ways to revoke a Power of Attorney authorization:

  1. Authorize Power of Attorney for a new representative for the same tax matters and periods/years. A new authorization will automatically revoke the prior authorization.
  2. Send a revocation to the IRS. Follow Revocation Instructions, Form 2848, Power of Attorney and Declaration of Representative.

Tax Information Authorization – Form 8821 – Tax Information Authorization is another IRS form that authorizes any individual, corporation, firm, organization, or partnership you designate to inspect and/or receive your confidential tax information in any office of the IRS for the type of tax and the years or periods you list on Form 8821.
The form allows you to:

  • Appoint a designee to review and/or receive your confidential information verbally or in writing for the tax matters and years/periods you specify.
  • Disclose your tax information for a purpose other than resolving a tax matter. For example: Income verification required by a lender or a background check.

A designee is never allowed to endorse or negotiate your refund check or receive your refund via direct deposit. A Form 8821 does not authorize your designee to:

  • Speak on your behalf;
  • Execute a request to allow disclosure of return or return information to another third party;
  • Advocate your position regarding federal tax laws;
  • Execute waivers, consents, closing agreements; or
  • Represent you in any other manner before the IRS.

The designee may not substitute another party as your authorized designee.

A Tax Information Authorization stays in effect until you revoke the authorization, or your designee withdraws it. When you revoke a Tax Information Authorization, your designee will no longer receive your confidential tax information for the matters and periods listed in the authorization. There are two ways to revoke a Tax Information Authorization:

  1. Authorize Tax Information Authorization for a new designee for the same tax matters and periods/years. A new authorization will automatically revoke a prior authorization.
  2. Send a revocation to the IRS. Follow Revocation Instructions, Form 8821, Tax Information Authorization.

Third Party Designee – There is no special form to file to make this authorization. You can designate on your tax form a person the IRS can contact about your tax return. This authorizes the IRS to call the designee to answer any questions that may arise during the processing of your return.  A Third-Party Designee can also:

  • Give the IRS any information that is missing from your tax return;
  • Call the IRS for information about the processing of your return or the status of your refund or payment(s);
  • Receive copies of notices or transcripts related to your return, upon request; and
  • Respond to certain IRS notices about math errors, offsets, and return preparation.

Authority is limited to that specific tax form, period of the return and issues related to processing that specific return. This authorization automatically expires one year from the due date of the tax return (not counting extensions).

Oral Disclosure – If you bring another person into a phone conversation or an interview with the IRS, you can grant authorization for the IRS to disclose your confidential tax information to that third party, who can be your tax preparer, a friend, a family member, or any other person you choose to receive oral disclosure during a conversation with the IRS.

An oral authorization is limited to the conversation in which you provide the authorization. Unless you state otherwise, the oral authorization is automatically revoked once the conversation has ended. The IRS cannot subsequently discuss your confidential tax return information with any third party until the Service receives a new authorization from you.

Remember, authorizing a third party to represent you is a significant decision that requires careful consideration and understanding. Please contact this office. We’re here to ensure that you have the information and support you need to make informed decisions about your third-party authorizations.