Today’s routine is similar to many other days until you started opening your mail. In today’s mail is a notice that you are being audited by the IRS.
Now what do you do? Give your CPA a Power of Attorney.
Federal Power of Attorney
To have your CPA represent you in front of the IRS, you will need to complete Power of Attorney – Form 2848. Caution must be exercised so that this form is filled out accurately and completely. If it is not, the IRS will reject the form.
Some of the information required on the form is:
- Taxpayers name, address, phone number and social security or tax identification number
- CPA's name, address, phone and fax number
- The type of tax (i.e. income, employment, excise, civil penalty)
- The form(s) (i.e. 1040, 1120, 1065, 1041)
- The tax periods involved
Both the taxpayer and the CPA must sign and date the federal Power of Attorney. A Power of Attorney is not just limited to an audit. It can be used anytime a taxpayer needs representation in front of the IRS.
Limited Power of Attorney
Several years ago the IRS attempted to make the Power of Attorney process simpler. On individual income tax Form 1040 there is a check box on page 2 of this form. It asks "Do you want to allow another person to discuss this return with the IRS?" Checking the box next to this question will authorize this party to communicate with the IRS.
While I appreciate the effort of the IRS to simplify things, this seems to fall short of its goal. We have not had much success trying to deal with the IRS when we have checked that box. Our experience is much easier to have the client complete a regular Power of Attorney.
State Power of Attorney
Unfortunately, the IRS is not the only one that can audit you. You can also be audited by the state tax departments. In Connecticut, this is called the Department of Revenue Services. To have your CPA represent you in front of the DRS, you will need to have completed Power of Attorney–Form LGL-001. Interestingly enough, only the taxpayer is required to sign and date the State of Connecticut Power of Attorney. The CPA does not does not have to sign.
ACTION ITEM: Taxpayers that are being audited or need other IRS representation should give a Power of Attorney to their CPA.
Thomas F. Scanlon, CPA, CFP®