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Back to Basics – Part XV – Form 2848 Power of Attorney
Filed under: Back to Basics | Tags: competent, conservatorship, CPA, disease or injury, executor, Form 2848, Form 56, FTB, incompetent, IRS, Notice of Fiduciary Relationship, out of the country, Power of Attorney, practice rights, representative, sign your return, trustee
Leave a comment Originally published in the Cedar Street Times
May 29, 2015
Question: My mother is older and it is sometimes difficult for her to sign her tax returns. I have a general power of attorney over her affairs that her estate planning attorney put together for us, so am I authorized to sign her tax returns? Also, we need to file a tax return for my son, who is away at college. Can I sign for him now that he is over 18? Can I call the IRS and talk to them about my mother’s taxes or my son’s taxes if needed?
Answer: In all of these cases, the IRS would first want you to file a Form 2848 – Power of Attorney. This is a limited power of attorney that just governs tax issues. (California also has an equivalent Form 3520, although they will generally accept a copy of the IRS Form 2848 as well.)
The Form 2848 is the standard document the IRS uses to process any individual that is acting as a representative for another person. As a CPA, I use this document as well when a client needs me to get access to their past tax information, balances owed, current status of notices, etc. It is also used if they need me to represent them during a tax audit. As with a general power of attorney, it is only good as long as the person is living. Once someone dies, a Form 56 – Notice Concerning Fiduciary Relationship is filed instead. An authorized executor or trustee, for instance, would file a Form 56, as a fiduciary, and they literally step into the shoes of the deceased individual with all the rights and authority that person had. After filing the Form 56, the fiduciary could then file a 2848 to authorize someone else, such as a CPA to represent them.
It is important to note that you cannot give just anyone full representation rights by filing a Power of Attorney. CPAs, attorneys, EAs, and immediate family members, are the only ones you can appoint for individual representation and provide them with full authority and practice rights before the IRS. (There are certain other classes that have limited practice rights, however.)
The Form 2848 also allows you to designate what authorities and for what tax periods you want to designate to your representative (such as “Income taxes and Gift taxes, Forms 1040 and 709, 2011-2015”). You can also indicate if you want your representative to receive copies of all IRS communication with you, if you want them to be able to add additional representatives without your consent, sign your returns, etc. If you want them to be able to sign your returns, there is additional language required as specified in the instructions to the 2848.
Generally, anytime you file a new Form 2848 it will replace any prior power of attorneys on file with the IRS unless you indicate otherwise and provide copies of the prior power of attorneys you wish to remain in effect. Both, the taxpayer and the representative must sign the power of attorney. Also note that this IRS Form 2848 – Power of Attorney does not replace or affect a general power of attorney in any way for other purposes. It is only used with the taxing authorities.
If the taxpayer is competent, but unable to sign the Form 2848, the IRS will allow an “X” to be made with the signature of two witnesses as well, and an explanation. In the case of someone who is incompetent, hopefully they had a general power of attorney. In these cases, as with the situation of the mother in the question at the beginning of the article, the power of attorney can be filled out with the exception of the taxpayer signing, and then the general power of attorney can be attached to the Form 2848. In the case of incompetent individuals without a general power of attorney in place it can become a sticky situation. A conservatorship is the proper legal vehicle to give one adult authority over another adult’s affairs when that person is incompetent and no other planning is in place, but this can be quite costly and impractical at times. I’ll let you wrestle with the IRS on that one!
If you would like to catch up on our Back to Basics series on personal tax returns, prior articles are republished on my website at www.tlongcpa.com/blog .
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
As an addendum to the print version of this article, I am adding this additional information regarding authorizing someone else to sign your tax returns for you. Generally, you can only authorize someone to sign your returns if: 1) disease or injury prevents you from signing, 2) you are out of the country for at least 60 days prior to the tax return due date, or 3) you request and the IRS grants you permission. In the question of the college student who needs a parent to sign his returns or the mother who has difficulty signing, both would have to meet one of these three requirements as well.
Back to Basics Part XIV – Form 2441 – Child and Dependent Care Expenses
Filed under: Back to Basics | Tags: $3000, $5000, $6000, 13 years, Child and Dependent Care Expenses, childcare, cleaning, clothing, cooking, day camps, daycare, dependent care benefits, Education, Flexible Spending Account, food, Form 2441, Form W-10, FSA, kindergarten, lodging, overnight campts, summer school, tutoring
Leave a comment Originally published in the Cedar Street Times
May 15, 2015
Question: I am the bread winner in our household. My wife is a homemaker and is the primary caregiver for our children, but we still send them to daycare once a week so she can have some uninterrupted time to go shopping, have a quiet lunch, and do some other chores. Can we claim the childcare expenses and get the childcare credit?
Answer: No. One of the requirements for claiming childcare expenses is that it is enabling you to go to work, or actively job search (or you are disabled or a full-time student). If your wife had a part-time job, or a self-employment activity and worked one day a week, then you could claim the childcare for the day you work each week, but you would still not be able to claim the childcare for the non-working day, even though you paid for childcare. This would also be why you cannot claim your Friday night babysitter when you go to dinner and a movie – nobody is working!
This week we are talking about Form 2441 – Child and Dependent Care Expenses. If you would like to catch up on our Back to Basics series on personal tax returns, prior articles are republished on my website at www.tlongcpa.com/blog .
As our Q&A clearly pointed out, the intent of the credit is to allow people to earn more money…which the IRS can then tax. But there are a host of other rules. First of all, who qualifies? If it is for childcare, the child has to be under 13 years old. If the child turns 13 during the year, you can claim expenses up until the day the child turns 13. You can also claim dependent care expenses for a physically or mentally disabled spouse or any other disabled person you can claim as a dependent. You can even claim it for disabled individuals that would be a dependent except their income was too high (there are a few other exceptions as well).
Divorced or legally separated parents can generally only claim the credit if the child lives with them the majority of the nights of the year. Even if you are allowed to claim the child as your dependent per your divorce agreement (such as in alternating year agreements), you still cannot claim the childcare expenses you pay unless the child spends the majority of the nights of the year with you. If your status is Married Filing Separate, you can only claim the credit if you meet the requirements already discussed, plus, you must not have lived with your spouse at any time during the last six months of the year, and you must have paid more than 50 percent of the costs of maintaining your household.
Second, what expenses qualify? Clearly the normal child or dependent care expenses paid to the provider while you work are deductible. You can also deduct the cost of day camps for children during the summer, for instance, but not overnight camps, tutoring, or summer school. You can claim the cost of household expenses such as cleaning and cooking if the individual is also caring for your child and the benefit is partly for your child (such as a nanny that cleans, cooks, and cares for your child). You cannot deduct the cost of education, food, entertainment, lodging, or clothing unless the expenses are incidental to the care provided and not separated out on the care provider’s bill. However, for children younger than kindergarten, you can deduct education expenses as childcare.
Third, how is the credit calculated? The most in childcare expenses that you can claim is $3,000 for one qualifying individual. If you have more than one qualifying individual you can claim up to $6,000. The expenses do not cap out at $3,000 per person either, meaning that if you had only $1,000 of expenses for one child but had $8,000 for the other child, you could still claim $6,000. The credit is then multiplied by a factor of 20 to 35 percent based on your adjusted gross income. If you had over $43,000 in adjusted gross income, which most people do in California, you will be limited to 20 percent. So the 20 percent times $6,000 would be a $1,200 maximum tax credit. Remember that tax credits are much better than tax deductions as they are a dollar for dollar reduction of tax. There are some other limitations as well. For instance, the amount of the credit is limited to the amount of tax you owe (meaning that it is not a refundable credit). Also, the aggregate amount of expenses you can claim are limited to the lower of your earned income or your spouse’s earned income.
Some people get dependent care benefits through their work. For instance an employer may pay the childcare provider directly or actually provide childcare onsite. Or, the employee may make pre-tax contributions from his or her paycheck and put the money into a Flexible Spending Account (FSA) through work to be used for childcare expenses. The amount or value of these items cannot exceed $5,000 each year. Several limitations to this amount are applied on Form 2441. If some of it is disallowed it is added back as an adjustment to wages. There is also the possibility of getting the credit pertaining to the extra $1,000, since $6,000 of expenses are allowable with multiple children, and the dependent care benefits are capped at $5,000.
The Form 2441 itself is a two page document. The first part requires information about the care provider such as name, address, taxpayer identification number and amount paid. Your safest course of action is to provide a Form W-10 to the daycare provider, for the daycare provider to fill out and give back to you. This is a special form just for daycare providers to fill out to provide their correct taxpayer identification information and certification to you. You can then safely rely on that document and not be concerned about the denial of your deduction if you have incorrect information in this regard. Part II of the Form 2441 requires information on the individuals receiving the care and then calculates the tax credit. Part III deals with dependent care benefits and plays into Part II as well.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Travis H. Long, CPA, Inc. Blog 