Want to authorize someone to discuss your tax with the IRS? Know the essentials

If you feel that you need some expert for handling your matters with the IRS, you can authorize a person to discuss your tax return with the IRS.  However, before authorizing you must be aware of the implications.

On your tax return, there is one box called ‘third party designee area’.  In that area if you check ‘yes’ box, and give required information, you are able to authorize a person (called ‘designee’ by IRS) to answer any questions which may arise during the processing of your return.  Such kind of designee can give information which is missing on your tax return, call IRS for information about your tax return or the status of your refund or the payments position, receive copies of notices relating to your tax return and respond to such notices.

Remember, this authorization will be valid only for one year and will automatically end on the date on which your next tax return is due (presently on April 15, 2010).  There are some specific requirements you should keep in mind before authorizing someone for this work.

If you have to sign and date your return (this cannot be done by your designee!).  If you are filing a joint return, both you and your spouse must sign the return even though your spouse may not have taxable income for the year.  If you are filing the return electronically, you can use electronic signature for this purpose.  Remember, if you are filing for a refund, your refund cannot be processed without your signature on the return. If you have already hired a preparer for your tax return, who has signed your return, then you should enter the word ‘preparer’ in the space for the designee’s name. You can appoint an agent for signing your return if you are unable to sign the return because of a disease or injury, or you are absent from the United States for 60 days before the due date.  A return signed by an agent must be accompanied by a power of attorney attached to the return.  You can alternatively use form 2848. Anybody who is paid to prepare your return must sign the return and fill in all the details which are required to be filled in by the paper preparer.  The paid preparer can sign your return either manually or he/she may use a rubber stamp, a mechanical device on a Computer Software program.  By whatever means the signature is made, the preparer is personally responsible for your tax return.  It is obligatory on the preparer to give you a copy of the return which he/she has filed with the IRS. Generally the taxpayer is permitted to limit access to the designee.  However if nothing is specified, confidential tax information can be disclosed to the designee. While completing the third party designee authorization process, the taxpayer needs to enter a self selected five digit PIN.  The designee is required to confirm this PIN while requesting information from IRS. It is possible for the taxpayer to establish an authorization verbally for open tax accounts on receipt of notice from IRS.  It only allows the appointee to respond to the issues raised in the notice, to ask questions and to provide information. This authorization will not allow the appointee to receive any hand written information neither it allows the appointee to represent the taxpayer.  Also, the appointee cannot receive refund checks of the taxpayer.

Please remember the difference between these three types of authorizations.  The third party designee (TPD) authorization is submitted on the tax return itself and it is intended for resolving the issues relating to return processing, payment or refunds.  The oral tax information authorization is for a tax period with reference to a specific notice.  The power of attorney is for allowing the tax professional like an attorney or a CPA to represent the taxpayer and includes power to negotiate with the IRS and argue on facts or law.  You can revoke this authorization any time, but care should be taken to ensure that the authorization has accomplished its purpose before making revocation.