Part 3 - Representation, Practice And Procedures - Representation Before The IRS
This section of the exam covers topics including power of attorney, building the taxpayer's case, taxpayer tax information and financial situation, and legal authority and reference for Enrolled Agents. Representation before the IRS includes presentations regarding a taxpayer's rights, privileges or liabilities under laws and regulations administered by the IRS. Enrolled Agents can represent clients by corresponding and communicating with the IRS, representing the client at conferences, hearings or meetings with the IRS, preparing and filing documents on behalf of a taxpayer, and providing written advice.
Power of Attorney
A power of attorney is a taxpayer's written authorization for an individual (such as an Enrolled Agent) to act on his or her behalf in tax matters. A power of attorney is submitted when an individual wants to authorize an Enrolled Agent to represent him or her before the IRS. Form 2848, Power of Attorney and Declaration of Representative, is used by a taxpayer to appoint an eligible person. By signing Form 2848, the individual authorizes the representative to receive confidential tax information and to perform the specified acts, subject to any modifications made by the taxpayer. The IRS will accept a power of attorney other than through Form 2848; however, the power must be in writing and contain the necessary elements as determined by the IRS. In regards to power of attorney, Enrolled Agents must be familiar with the following concepts:
- Acting on behalf of a taxpayer
- Alternate forms of power of attorney
- Centralized Authorization File (CAF) system
- Client privacy and consent to disclose
- Limitations of authority
- Power of attorney requirements (Form 2848)
- Prohibition for cashing or depositing taxpayer refund check
- Prohibition for signing tax returns
- Purpose of filing a tax information authorization
- Requirements for changing or dropping a representative
- Signature authority
Conference and practice requirements
Building the Taxpayer's Case - Preliminary Work
In order to effectively represent a taxpayer before the IRS, the Enrolled Agent must determine the details of the taxpayer's concerns by gathering information. In addition, the Enrolled Agent must perform certain actions and make considerations including:
- Determining the taxpayer's issue – type, details, etc.
- Determining the potential for illegal activity
- The agent's competence, expertise and ability/time to handle the issue(s)
- Any potential or current conflicts of interest
- Transcripts from the IRS
Taxpayer Financial Situation
The Enrolled Agent may have to make an in-depth analysis of the client's financial situation to determine the taxpayer's ability to pay taxes and his or her general financial health. As an Enrolled Agent, you will need to perform research to determine and evaluate many aspects of the client's financial situation:
- Ability to pay tax – installments, offer in compromise
- Discharge of tax liability in bankruptcy
- Financial health – bankruptcy, lawsuits, liens, garnishments, etc.
- Third-party research- property assessment, state/local taxes, etc.
- IRS Collection Financial Standards
The determination of a taxpayers financial situation may also include the finding, review and comparison of a variety of financial documents. As an Enrolled Agent you will therefore need to know how to read and understand:
- Supporting documents for business entities – Articles of Incorporation, bylaws, etc.
- Previous tax returns
- Legal documents – birth certificate, lawsuit settlements, etc.
- Financial documents – credit card and bank statements, etc
- Employment reimbursement policies
Legal Authority and References
Enrolled Agents have the legal authority to represent taxpayer clients before the IRS. Enrolled Agents should understand the extent of the authority as well as the authority of the IRS, and be familiar with the following:
- Case law
- Form instructions
- Internal Revenue Code (IRC)
- Internal Revenue Manual (view at www.irs.gov/irm/)
- IRS notices
- IRS publications
- Private letter rules
- Revenue procedures
- Revenue rulings
- Source material – authoritative versus non-authoritative
- Treasury regulations
Other issues related to representation before the IRS that Enrolled Agents should have familiarity include:
- Statute of limitations
- Post-filing correspondence
- Requirements for deadlines and timeliness
- Third-party correspondence
- Freedom of Information Act requests
- Tax avoidance versus tax evasion
- Tax return disclosure statements
- Taxpayer Advocate Service - criteria for requisition assistance
- Identity theft
- Higher levels of representation, beyond the Enrolled Agent - tax court, district court, claims court, Court of Appeals, Supreme Court
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