Form 2848: Ethical Issues for Tax Practitioners

Tax practitioners increasingly find Form 2848, Power of Attorney and Declaration of Representative, to be an integral component of providing professional service to taxpayers, whether that service is in tax compliance or correspondence and controversy representation. The complexity of tax laws and problems in dealing with the IRS require tax practitioners to rely on Form 2848 more frequently. In addition, many states have their own version of a power of attorney (POA) form, and practitioners should be aware of these when dealing with state revenue departments. This column discusses some of the rules regarding preparation of Form 2848 and also addresses professional ethics issues that arise in dealing with the form.

In recent years, many practitioners have been obtaining Forms 2848 as a standard and cautionary procedure in the course of preparing income tax returns to enable access to return information filed with the IRS on behalf of clients and to monitor any IRS correspondence that may arise after the returns have been filed. Due-diligence concerns may require obtaining an account transcript showing items such as the estimated tax payments and withholding reported under the taxpayer's Social Security account number (SSAN) and the various Forms 1099 reported under the taxpayer's SSAN to accurately report all information for the taxpayer. This is especially true for taxpayers with substantial complex financial products, brokerage transactions, and deficient recordkeeping.

The authors frequently see matching notices such as CP2000 (which the IRS sends when the income or payment information it has on file does not match what was reported on the tax return) for underreported or missing items of income, which often results in a Sec. 6662 accuracy-related penalty because of an omitted information return. Having a Form 2848 in effect should help minimize these notices. In addition, having a Form 2848 on file will allow the practitioner to be informed of any audit action by the IRS on the return that is included on the Form 2848. 

The IRS announced on May 20, 2016, that all initial contacts with taxpayers to commence examinations will be made by mail. If the taxpayer has designated a representative, both parties will receive the letter, and then subsequently the IRS will make telephone contact. Thus, the precaution of executing a Form 2848 as part of the preparation process would protect against situations where clients neglect to inform the CPA they have been contacted by the IRS to commence an examination. Of course, the CPA must balance the administrative burden of monitoring Forms 2848 for every return prepared for every client with the risk that a client will neglect to notify the CPA of a pending IRS examination for one or more returns.

An executed Form 2848 is mandatory for IRS employees to discuss taxpayer matters with a practitioner. All practitioners should use the latest version of the form and submit separate forms for spouses on joint returns to avoid the form's being rejected by the IRS.

Preparation of Form 2848

The December 2015 revisions to the form and its instructions provide more information to assist practitioners in the correct preparation and filing of Form 2848. Most tax matters with which practitioners will deal are listed in the instructions. Carefully following these instructions will facilitate correct preparation and avoid delays in processing by the IRS.

Important changes include:

• Form 2848 must be filed on paper by mail or sent to the IRS by fax due to the discontinuance of electronic filing of the form under the IRS Disclosure Authorization Program. All references to electronic filing of the form have been deleted.
• The new instructions finally indicate the correct fax numbers and mailing addresses for filing Forms 2848. Because fax numbers can change without notice, practitioners should consider checking the IRS website at irs.gov/form2848 under "Recent Developments" for current fax numbers.
• Line 2 has been changed to allow four names to be entered on the form. Any change in firm personnel may necessitate updating the Forms 2848 on file to be sure all IRS correspondence on client matters goes to the responsible client service personnel.
• Changes are coming about as a consequence of the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148.
• Line 3 ("Acts authorized") has been changed with language added for the description of the tax matter and to add the descriptions of other matters that may apply for the Form 2848 being filed. The practitioner should pay particular attention to these instructions.
• Line 4 ("Specific use not recorded on Centralized Authorization File (CAF)") is a one-time or specific-issue grant of authority to a representative or is a POA that does not relate to a specific tax period (except for civil penalties) that the IRS does not record in the CAF system. CAF is an IRS computer file system containing information regarding the authority of individuals appointed under POAs. Check the box on line 4 if the POA is for a specific use or issue that the IRS will not record on the CAF. The instructions include examples of various specific uses that may be authorized here. If the box on line 4 is checked, the representative should mail or fax the POA to the IRS office handling the matter. Otherwise, the representative should bring a copy of the POA to each meeting with the IRS.
• Line 5a (acts authorized in addition to those listed in line 3) has also been changed to include authorizing the representative to disclose tax returns or return information to third parties, to substitute or add representatives, and to sign a return. Line 5a also includes a section titled "Other acts authorized" (for which no examples are provided in the instructions), and line 5b provides for listing specific acts not authorized, including endorsing or negotiating a check.
• The instructions provide guidance for practitioners on obtaining a list of current POAs on file by CAF number and withdrawing a previously filed Form 2848.

Filing Form 2848

The new version of the instructions contains an updated "Where to File Chart," which indicates mailing addresses and fax numbers for filing executed Forms 2848. This information will alleviate problems caused by the fact that this information was not in the previous instructions or otherwise communicated by the IRS. The previous instructions caused much confusion for practitioners and the rejection of many POAs.

The Patient Protection and Affordable Care Act

PPACA enacted Sec. 5000A, the individual shared-responsibility payment (individual mandate), and Sec. 4980H, the employer shared-responsibility payment (employer mandate). Taxpayers must specify on Form 2848, line 3, "Description of Matter," whether they are authorizing representation for the individual mandate or employer mandate. As implementation of mandates and other aspects of PPACA progress, it is possible that more specific descriptions will be added on Form 2848.

Reasons for Rejection of Forms 2848

Practitioners should carefully review completed Forms 2848 before obtaining client signatures and subsequently filing the form with the IRS, to be sure it has been properly completed.

Some common reasons Forms 2848 are rejected include:

• Missing representative and/or taxpayer signatures or signature dates (the Form 2848 instructions explain requirements for the signature and date, p. 5).
• Line 3, "Acts authorized"—nonspecific identification of tax periods (tax matters), i.e., generalizations. Example: all years, all future periods. The instructions outline several acceptable entries for the acts authorized and description of tax matters field (p. 3). Example: 2012 through 2014; 2012-2014; or 2012, 2013, 2014.
• If the box on line 6, "Retention/revocation of prior power(s) of attorney," is checked and no copy of the prior POA is attached to identify the representative who is being retained. 
• Missing designation and/or jurisdiction state.
• Missing bar license, certification, registration, or enrollment number when applicable.
• Title of business taxpayer signing the POA is not indicated.

The proliferation of LLCs taxed in various entity forms has created confusion as to who is the authorized person to sign on behalf of the entity. In response to this, the IRS posted a resource page on its website explaining who should sign at irs.gov/uac/Powers-of-Attorney-for-LLCs.

Ethical Responsibilities and Considerations With Form 2848

Forms 2848 may be obtained in both return preparation and representation engagements. Generally, practitioners should refer to relevant ethical pronouncements when preparing and filing Forms 2848:

• Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), available at irs.gov/pub/irs-pdf/pcir230.pdf.
• AICPA Code of Professional Conduct (AICPA Code), available at pub.aicpa.org/codeofconduct/Ethics.aspx.
• AICPA Statements on Standards for Tax Services (SSTSs) and Interpretations, available at www.aicpa.org.
• State board of accountancy rules.

It should be noted the decision in Loving, 742 F.3d 1013 (D.C. Cir. 2014), held that the IRS has no statutory authority under 31 U.S.C. Section 330 to regulate preparers of income tax returns under Circular 230. Ethical responsibilities under Circular 230 as mentioned in this column address the representation of taxpayers and not return preparation. While Circular 230 may not govern CPAs in the preparation of federal tax returns, the AICPA Code, the SSTSs, and state board rules would.

Communicating and documenting to the taxpayer the necessity for the Form 2848 and the expectations of each party are required. This would be especially true for tax representation engagements. Provisions for withdrawing the Form 2848 should also be communicated to the taxpayer and documented in the practitioner's records.

Form 2848 in Return Preparation Engagements

In return preparation, Form 2848 may be necessary for determining whether all items of income are being reported on the return being prepared. An executed Form 2848 enables the CPA to download a transcript of the account from the IRS, which would identify income items reported to the IRS, such as Forms 1099 and Schedules K-1 that the client has misplaced or otherwise not received. The practitioner also should take steps to emphasize to the taxpayer his or her responsibility in reconciling tax return reported information with questions or other inquiries received from the IRS.

Using Form 2848 in return preparation may result in the practitioner's becoming aware of a client error in a previously filed return. As previously discussed, Circular 230, Section 10.21, Knowledge of Client's Omission, would not be directly applicable due to the Loving decision. SSTS No. 6, Knowledge of Error: Return Preparation and Administrative Proceedings, would provide guidance to CPAs when an omission in a previously filed return comes to light.

If the CPA also has been engaged to represent the client with regard to the prior return that contains the error, SSTS No. 6 and Circular 230, Section 10.21, both would apply. Generally, the practitioner has a duty to inform the client of the error and the means by which it should be corrected. Since Circular 230, Section 10.51, Incompetence and Disreputable Conduct, prohibits a professional from making false or misleading statements to the IRS, the CPA may face a serious dilemma when the client refuses to correct the error in an appropriate manner.

Form 2848 in Representation Engagements

In tax representation engagements, the practitioner should ensure the taxpayer is aware of the taxpayer's responsibility in resolving any matters that arise in a tax examination, collection issue, or other tax representation matter. Besides written representations by the taxpayer, oral representations and testimony may be needed. The taxpayer should recognize that executing a Form 2848 does not absolve the taxpayer from involvement in the process or give a practitioner unlimited authority to handle every matter related to the subject of the Form 2848.

The POA grants the practitioner broad authority to resolve controversies with the IRS on behalf of the taxpayer(s). Although most practitioners do not exercise this authority without the approval of the taxpayer(s), an uncommon, but possible, problem may arise if the taxpayer is unavailable due to physical incapacity or other causes. In such circumstances, the practitioner needs to determine if anyone else has the authority to act for the taxpayer, such as an executor of an estate or an agent possessing a general POA. However, if no such authority exists and the practitioner is confronted with a response deadline and cannot obtain an extension of the time to respond, consultation with legal counsel or other taxpayer advisers should be considered before deciding to act unilaterally for the taxpayer under the POA authority.

Conflicts of Interest

Conflicts of interest may arise that provide a challenging set of circumstances to the practitioner. The applicability of Circular 230 in return preparation engagements has been called into question by Loving, as previously mentioned. However, the AICPA Code and state board of accountancy rules would apply. The latest revision to the AICPA Code, Section 1.110.010, Conflicts of Interest for Members in Public Practice, should be followed. Circular 230, Section 10.29, Conflicting Interests, would govern practitioners in representation engagements.

The most common scenario for a conflict of interest occurs with married couples. Estrangement of spouses, separations, or divorce proceedings can create a conflict of interest between the spouses, resulting in an ethical issue for the CPA. Practitioners must consider whether an executed conflict-of-interest waiver by the parties can remedy the situation. Even if a waiver is obtained, practitioners may wish to consult their liability insurers or attorneys regarding a conflict of interest.

POAs executed by individual spouses relative to a joint return present concerns if the spouses separate subsequent to the joint return year. The practitioner/preparer who has the power under Form 2848 must consider whether the continued representation of both spouses represents a conflict of interest and, if so, whether a waiver-of-conflict letter should be obtained. Even if a waiver is obtained, if the estranged spouses are in an adversarial position, the practitioner may need to withdraw from representing one of the parties and instruct the other taxpayer to retain separate representation for the joint return.

Another common conflict arises in engagements involving business partners, whether involved in a partnership, corporation, LLC, or other form of business entity, especially when the parties are in the process of liquidating or disposing of the venture. Again, an executed waiver should be obtained from all interested parties.

Previously Filed Forms 2848

The IRS has indicated it will delete previously filed Forms 2848 after seven years. In addition, since the form changed in 2011, prior filings would have been on the now superseded form. Two issues arise here. If the relationship is continuing, the practitioner should consider removing the prior filing and substituting a newly executed Form 2848, which might better reflect the current relationship with the client. The second issue is that the existence of Forms 2848 (whether pre-2011 or on the current Form 2848) on file for prior tax matters and for previously represented clients may result in IRS expectations that the practitioner still represents the former client and thus would be available for consultation about tax matters on behalf of the former client. Although many practitioners have a policy of withdrawing Forms 2848 when client representation ceases, all practitioners should routinely review, monitor, and revoke unnecessary Forms 2848 on file with the IRS. Those procedures would ensure that the IRS will not treat Forms 2848 as active, even though the client representation or relationship has ceased.

The instructions now describe the procedure to obtain a list of Forms 2848 currently on file. Representatives may receive a list of their POAs recorded on the CAF system by following the instructions for submitting requests at irs.govby clicking the "Freedom of Information Act" link at the bottom of the page, clicking on "Routine access to IRS Records," and then clicking on "CAF Client Listing Request." The Freedom of Information Act (FOIA) request is called a CAF77 request. The Form 2848 instructions indicate this is available to practitioners under FOIA. A sample letter is provided on the IRS website at www.irs.gov.

The listing received from the IRS should indicate all clients with active authorizations under a single CAF number. If the practitioner has multiple CAF numbers, CAF77 listing letters should be sent in for each CAF number. The IRS should include all Forms 2848 in its system. Third-party designee information from filed returns is not included.

Summary

Form 2848 is a necessary and useful tool for practitioners engaged in tax services. Communicating and documenting the responsibilities associated with the form to the taxpayer is also required.

Proper use of Form 2848 will enable practitioners to better monitor their clients' tax accounts and assist with serving clients, satisfactorily meeting their expectations, and retaining them.

IRS Material Relevant to Form 2848

Practitioners should consult the following IRS materials for additional guidance on Form 2848: • IRM Section 11.3.3, Disclosure to Designees and Practitioners. • IRM Section 4.10.1.5.5, Representation/Power-of-Attorney Requirements. • IRM Section 4.10.3.2.1.1, Powers of Attorney. • IRM Section 21.3.7, Processing Third Party Authorizations Onto the Centralized Authorization File (CAF). • Code of Federal Regulations (26 C.F.R. 601.501 through 509), Conference and Practice Requirements. • Circular 230 (31 C.F.R. 10.0 through 10.93), Regulations Governing Practice Before the Internal Revenue Service. • Rev. Proc. 81-38: unenrolled preparer. • Rev. Proc. 68-29: the extent to which employees of the IRS may accord recognition to persons acting on behalf of taxpayers as a "witness." • IRS Publication 216, Conference and Practice Requirements. • IRS Publication 470, Limited Practice Without Enrollment (Rev. Proc. 81-38). • IRS Publication 947, Practice Before the IRS and Power of Attorney. • IRS Publication 4019, Third Party Authorization, Levels of Authority.

AICPA Resources • Guidelines for Conflicts of Interest in the Performance of Federal Tax Services (AICPA member login required). • Due Diligence in Tax Services (AICPA member login required). • Tax Practice Quality Control Guide (available to Tax Section members). • Schreiber, “Tax Practice Responsibilities: Tax Return Processes: The Intersection of Due Diligence and Quality Control,” The Tax Adviser (February 2016). • Schreiber, “Tax Practice Responsibilities: An Overview of AICPA and IRS Rules of Practice,” The Tax Adviser (February 2014). • Moïse, “Tax Practice Responsibilities: Setting Proper Boundaries With a Clear, Concise Engagement Letter,” The Tax Adviser (November 2014). • Horwitz, “Tax Practice Responsibilities: Conflicts of Interest: IRS Rules Differ From AICPA Professional Standards,” The Tax Adviser (November 2011). • Schneid, “Tax Practice Responsibilities: Due Diligence Update,” The Tax Adviser (May 2012). • Sonnier, “Tax Practice Responsibilities: Circular 230, Section 10.21, and SSTS No. 6: Standards Relating to Taxpayer Errors and Omissions,” The Tax Adviser (August 2012). • Schreiber, “Circular 230 Best Practices,” JofA, April 14, 2010.

Contributors

Thomas Purcell is a professor of accounting and the chair of the Department of Accounting at Creighton University in Omaha, Neb. Gerard Schreiber is a partner with Schreiber & Schreiber CPAs in Metairie, La. James A. Smith is the managing director of Smith, Jackson, Boyer & Bovard PLLC in Dallas. Prof. Purcell is the chair and Mr. Smith is a member of the AICPA Tax Practice Responsibilities Committee. Mr. Schreiber is a member of the AICPA IRS Advocacy & Relations Committee and a former member of the AICPA Tax Practice Responsibilities Committee. For more information on this column, contact thetaxadviser@aicpa.org.