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Third-party authorizations: What to know before you sign

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in Office Management,Payroll Management

You can’t hire a third party, like a payroll service bureau, to handle your payroll unless you sign Form 8655, Reporting Agent Authorization. Along with that form, the reporting agent may also ask you to sign Form 8821, Tax Information Authorization.

Caution: Don’t sign forms blindly. In a recent IRS Live webinar, IRS reps Anna Bazaco, Senior Tax Analyst, CAS Accounts Management and Richard Goldstein, Special Counsel, Associate Chief Counsel (Procedure & Administration), Office of Chief Counsel, reviewed the various ways you can authorize third parties to act on your behalf.

Tax information authorization

There are four types of tax information authorizations, with different levels of authority. First, the third party can check the box on Form 941 or 940. Checking the box allows the third party to assist the IRS in processing that form, Bazaco said.

Next, you can complete Form 8821, which allows the third party to receive tax information on your behalf. You can be as specific or as general with the authority you give on Form 8821, Goldstein commented. Key: Forms 8655 and 8821 overlap in many respects, but a properly signed Form 8821 can be entered into the IRS’ Central Authorization File, or CAF for short. According to Bazaco, the CAF is the IRS data base in which all third-party authorizations are stored. CAF numbers are powerful dispute resolution tools because they allow any IRS employee to access information and talk to your third-party designee.

Third, you can complete Form 4506, Request for Copy of Tax Return or Form 4506-T, Request for Transcript of Tax Return. Similar to check boxes, these forms allow a third party to obtain a copy of a previous filed return or tax transcript. It’s specific to those returns, Goldstein added.

Finally, but not recommended, you can orally consent to a third party acting on your behalf.

Power of attorney

Signing Form 2848, Power of Attorney and Declaration of Representative, authorizes specified individuals to act on your behalf. Form 2848 is also entered into the CAF. Contrary to its name, a nonlawyer can hold a power of attorney, as long as he or she can practice before the IRS. You can revoke a power of attorney by slashing a line on your copy of the first page, writing “Revoked” at the top of the form and filing it with the IRS.

Similar to tax information authorizations, you can tailor a Form 8821 power of attorney. But a power of attorney is more comprehensive than a tax information authorization, since it allows a third party to negotiate and settle issues, sign a closing agreement or consent to extend the statute of limitations, Goldstein noted.

WHICH FORM IS BETTER? Once you sign Form 8821, any employee of your service bureau can receive information from the IRS. Contrast: Powers of attorney are personal and portable, which means that only the individuals you’ve designated can act on your behalf.

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Charles Read June 4, 2013 at 11:02 am

As a CPA I get a Form 2848 Limited Power of Attorney from every client in my payroll service bureaus, http://www.custompayroll.com and http://www.payrollonabudget.com (for companies with 10 or less employees). The 2848 allows me to advocate for my clients with the IRS, something the other forms do not allow people to do. This allows me to move an IRS mistake to an appeals level and get it fixed. If you are dealing with collections at the IRS they are more interested in collecting rather than correcting. Many people also don’t realize that a simple mistake does not and should not mean a penalty from the IRS. Unless you did not apply due diligence mistakes are just mistakes and should not be penalized. A Payroll Service Bureau with CPAs on staff and filed 2848s can really help you with the IRS problems. The other Forms are for clerical people who don’t have the training, experience or expertise to advocate your case with the IRS. You don’t go to court without an attorney, don’t deal with the IRS without a CPA.

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