During a time of crisis, you or a loved one may not be mentally competent to make important financial decisions in the future. Granting power attorney to someone is the easiest way to make sure that your financial wishes are carried out after you are no longer capable of doing so yourself. The IRS allows for individuals who fear they might become mentally incompetent or incapable of handling financial or tax-related matters to sign over their rights to a qualified representative.

What is an IRS Power of Attorney?

A power of attorney (POA) is a document that grants an agent or third party the legal right to act on your behalf. The situations and context in which the agent can act are contingent upon what is specified in the form. For example, a third party who is granted power of attorney to make medical decisions for the principal (someone who has granted power of attorney), cannot also make financial decisions unless specified in the IRS POA document. For financial and tax-related purposes, an IRS power of attorney may be drafted so that an agent may make financial decisions on someone else’s behalf.

Who can be Granted Power of Attorney?

Anyone can be granted power of attorney. You don’t need to be a lawyer to be the authorized individual in a POA agreement. However, it’s a good idea to select an attorney or CPA you trust as the third party. Only a credentialed tax professional can represent a client before any department of the IRS. Credentialed tax professionals are attorneys, CPAs, and enrolled agents—it’s important to note that an enrolled agent can only represent clients before auditors and customer service representatives and only when discussing tax returns. For tax power of attorney agreements, it’s best to have at least one of your representatives be an attorney or CPA.

Form 2848

This is the form that will need to be filed in order to create an IRS POA. The form is broken into 7 different sections that will establish the various aspects of the agreement. Here is a brief description of Form 2848 instructions:

  • Section 1 (Taxpayer Information): In this section, you will provide your name, contact information, social security number, and tax ID number.
  • Section 2 (Representatives): This section will ask you to identify the individual(s) that will represent you. Up to four different individuals may be selected; their names, addresses, telephone and fax numbers will be required as well. Representatives will also need to include any CAF numbers or PTIN assigned by the IRS. Check the box at the bottom of the form if you would like your representatives to receive all copies of the documents the IRS sends.

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  • Section 3 (Acts Authorized): Section 3 specifically states the issues that the authorized individual may handle. You are required to describe the nature of the issues, the types of forms involved, and the periods of time you will give the representatives authority. After the period of time has expired you will need to file a new form to extend it.
  • Section 4 (CAF): CAF stands for centralized authorization file—this is where the IRS typically records all of its power of attorney agreements. There are certain uses for the IRS power of attorney agreement that does not require CAF such as a private letter ruling.
  • Section 5 (Authorized Acts): This section provides a detailed accounting of the acts you will allow your representative(s) to perform and the acts that they cannot.
    • Section 5(a): This will allow for your representatives to appoint other third parties to perform acts on your behalf.

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  • Section 5(b): The “Specific Acts Not Authorized” section explicitly states what your representatives cannot do on your behalf.
  • Section 6 (Retention/Revocation of Prior POA): When you file Form 2848, it automatically revokes and overrides any previously filed 2848 Forms that include the same issues and time periods specified on the new form. If you wish to alter or make an addition to your form, check the box in this section so the previous form doesn’t get overwritten.
  • Section 7(Signatures): Finally the form must be signed; if the form refers to a jointly filed tax form such as Form 1040, then your spouse must also fill out and sign their own Form 2848.

The best thing to do is to go through this form with a licensed tax professional so that the document is airtight and performs the exact duties you want it to. Granting power of attorney to someone, whether they may be a loved one or tax professional, is a delicate and sensitive process. You don’t want to give too much or too little power—one way to avoid this is to have a CPA or tax attorney review your form before your file.

How to Revoke a Power of Attorney

If you need to revoke an IRS power of attorney agreement or withdraw a representative you must write “REVOKE” across the top of the first page with a current signature and date below the annotation. Keep in mind, aspects of your tax power of attorney could be altered without a complete revocation. You can also write a completely new agreement that addresses the same issues and time frames as the previous Form 2848.

If you need to file a Form 2848 with the IRS, Community Tax has the tools and resources to assist you. You should never file a document as important as a Form 2848 without first having a tax professional examine and approve it first. The team at Community Tax has the qualifications and expertise to make sure your representatives have as much or as little power as they need. Don’t wait until it’s too late for you or your loved one to file this important document, call Community Tax today 888.684.5803.