Archive for the ‘CPA’ Tag

Back to Basics – Part XV – Form 2848 Power of Attorney

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.

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Aren’t All Tax Returns Created Equal?

Originally published in the Cedar Street Times

February 7, 2014

There is a belief by many people that a tax return is a bit of a commodity – basically you are going to get the same results no matter if you or anybody else prepares the return.  If that were true, your only goal would be to find the absolute cheapest tax preparer in town (or do it yourself).

A number of years ago Money magazine used to annually send out the same hypothetical family’s tax return to be prepared by 45-50 tax preparers across the country.  The surprising result was that it was rare in any year to have even two tax returns prepared the same way.  The most recent one that I could find resulted in only 25 percent of the preparers coming within $1,000 of the theoretical correct answer.  That means 75 percent missed the mark by more than $1,000.  This certainly speaks to the complexity of the tax code, and why you really need to have someone with as much relevant experience, education, and training as possible to navigate the tax terrain.  You may think you are being savvy by saving $200-$300 by getting a deal on your tax preparation, but what did you get?  Maybe you overpaid your tax by a $1,000 in the process of saving $300.  And how would YOU ever know.

When it comes to hiring someone to prepare your returns, credentials are not everything, but they certainly are a measuring stick of the education, training, testing, and commitment required.  Here are your options:

Do-It-Yourself Software (i.e. TurboTax) – Tax software, whether for professionals or amateurs is certainly a requisite tool to bring any measure of accuracy or efficiency to preparing a tax return.  Computers are quick at math and very accurate at crunching numbers (that is the part that is “guaranteed” to be accurate by do-it-yourself software providers), but if you provide the wrong input, or your software is not even programmed to ask you or accept all the variables you might need, then you will get a wrong answer every time (that part they don’t guarantee).

In addition, without an understanding of the forms and tax law, you will have no idea if there is a glaring error staring you in the face when you are ready to submit the forms.  I have seen countless returns butchered through the use of tax preparation software over the years.  I am currently amending three years of tax returns for a family that overpaid their taxes by $1,000 a year for the past twelve years due to a simple mistake that the software was not able to point out to them.  Unfortunately the statute of limitations has run out on the first nine years and they cannot get a refund at this point.

RTRP -“Registered Tax Return Preparer” – This is the current basic credential required by the IRS to prepare tax returns for pay.  There is no formal high school or college education required, no professional class and exam process to become licensed, and no continuing education requirement.  You just pay $65 to the IRS and you can prepare tax returns professionally!  This designation was created in the last few years with the intent of having a basic exam and some continuing education, but the testing and education requirements have been put on hold pending legal challenges to the requirements. RTRPs have limited practice rights before the IRS.

CRTP – “CTEC Registered Tax Preparer”– (CTEC stands for CA Tax Education Council) – This is the current basic credential required by California to prepare tax returns for pay.  Again, there is no formal high school or college education required.  There is a 60 hour professional class (equivalent to three or four semester units in college – one class) that is offered by many providers in person, on the internet or by self-study with an exam on the material covered.  There is 20 hours of continuing education each year, and a $5,000 bond.  This is the license that the vast majority of preparers hold in California at chains such as H&R Block, Liberty Tax Service, and Jackson Hewitt.  CRTPs also have limited practice rights before the IRS.

EA – “Enrolled Agent” – This is the highest of the two designations offered by the IRS, and EAs can practice in any state.  Again there is no formal high school or college education required, and there is no required professional class (although an intensive prep course is generally taken).  There is a 10.5 hour proctored three-part exam with 100 question each – one on individual, one on business returns, and one on practice procedures and ethics with essentially 24 hours of continuing education each year.  EAs have unlimited practice rights before the IRS.

CPA – “Certified Public Accountant” – Licensed by each state (although there is reciprocity to practice with nearly every state now).  California requires a college degree with 150 semester units (five years) including 24 semester units of accounting and 24 semester units of business related courses in taxation, economics, finance, management, etc., 10 semester units of ethics, and another 20 semester units of accounting studies which a masters of taxation or masters of accountancy would satisfy.  You must then work for a year under the direct supervision of a CPA.  If you want to be able to sign audit reports, you have to have 500 supervised audit hours.  You must also pass a 14 hour proctored four-part national exam and then a CA ethics exam.  California also requires a LiveScan background check and fingerprinting of all applicants.  There is essentially 40 hours of continuing education required each year for California CPAs.  CPAs have unlimited practice rights before the IRS.  Although CPAs are trained in, and can do a lot more than just your tax returns, most small CPA firms focus on tax preparation.

Attorney – Licensed by each state. We won’t discuss the requirements to become an attorney, as attorneys rarely prepare tax returns.  Some attorneys that specialize in tax will prepare tax returns, although most of those are focused on estate tax returns.  Attorneys that do prepare tax returns will often have obtained a CPA license also.  Attorneys have unlimited practice rights before the IRS.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

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.