As the U.S. population ages, taxpayers and their representatives are increasingly confronted with the question of how to appoint a power of attorney (POA) to act on behalf of taxpayers in the event of incompetence or incapacity. When taxpayers are competent, they use a Form 2848, Power of Attorney and Declaration of Representative, for this purpose. However, an incompetent or incapacitated taxpayer is in no position to execute a Form 2848. Likewise, even a preexisting Form 2848 is usually voided if taxpayers become incompetent or incapacitated. In other contexts, individuals typically rely on various types of POA instruments to enable representation, but the IRS often will not recognize these for tax purposes. Thus, in the event of unforeseen circumstances, taxpayers can find themselves without a voice in their own tax matters beyond that of a court-appointed fiduciary.

One way of avoiding this potential pitfall is through creative and well-informed use of a durable power of attorney (DPOA). DPOAs are a common tool in the realm of estate planning and financial and medical decision-making. The key feature of a DPOA is that it remains operative or becomes effective when the principal (the individual who granted the authority) becomes incompetent or unable to act on his or her own behalf.

Tax practitioners rarely rely on DPOAs because, in their usual format, they do not authorize representation before the IRS. For this reason, individuals who have been acting on behalf of someone via a DPOA (often known as “attorneys-in-fact”) may have an unwelcome surprise when it comes to IRS representation.

Based on regulatory requirements, the Form 2848 includes information beyond a typical DPOA, such as:

• The taxpayer’s Social Security number;
• Name and mailing address of the appointed representative(s); and
• A description of the matter or matters for which the representation is authorized that must include, as applicable—
  • Type of tax involved;
  • Federal tax form number involved; and
  • Specific year(s) involved.
• Note also that any appointed representative would need to meet the practice requirements specified by Circular 230 § 10.2 and 10.7(c).

Without these and certain other specifics, the attorney-in-fact cannot represent a taxpayer before the IRS. However, this does not mean that a DPOA can never furnish this authorization; it can, if it enumerates the appropriate details. In other words, the information doesn’t have to be presented on a Form 2848, but the information from the Form 2848 must be present.

When seeking to represent an incapacitated taxpayer before the IRS, attorneys-in-fact should submit a copy of the detailed DPOA as well as Part II of the Form 2848 (Declaration of Representative). Of course, taxpayers cannot foresee the twists and turns of future audits, with the result that many DPOAs do not include the requisite information.

To accommodate this circumstance, taxpayers can adopt an alternative method, which is to utilize what, for tax purposes, can be thought of as a broad DPOA. Under this approach, the broad DPOA simply states that the attorney-in-fact is authorized to represent the principal in federal tax matters. The IRS will accept the broad DPOA as giving the attorney-in-fact the authority to execute a Form 2848 on behalf of the taxpayer. In this scenario, an attorney-in-fact wishing to initiate representation before the IRS should submit the broad DPOA and also complete Form 2848 with all relevant information.

Conclusion

Not all IRS personnel are aware of these rules and policies surrounding the use of DPOAs to facilitate tax representation. As a result, if any questions or controversies arise in this context, it may be helpful to provide them with this recent guidance from the IRS Office of Professional Responsibility.

As with more common forms of estate planning, such as wills and advance medical directives, a few minutes of care now can save a great deal of complication and difficulty later. Whether opting for a detailed DPOA or broad DPOA, either of these vehicles can ensure tax representation in the event of unforeseen circumstances, thus eliminating unnecessary stress and burden during a difficult time.

Additional Resources

Eligible taxpayers can reach out to Low Income Taxpayer Clinics (LITCs) for assistance. LITCs are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs are a great resource and can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court, including the Tax Court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. LITC services are offered for free or a small fee. For more information or to find an LITC near you, visit www.taxpayeradvocate.irs.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List. This publication is also available online at www.irs.gov/forms-pubs or by calling the IRS toll-free at 800-TAX-FORM (800-829-3676).

Correction: On 10/5/22, the title of the Blog was changed from “Use a Durable Power of Attorney to Authorize Representation Before the IRS” to “When to Use a Durable Power of Attorney to Authorize Representation Before the IRS”