Powers of Attorney

December 01, 2017
Specific Information Must Be Provided

By Stuart R. Josephs, CPA
Chief Counsel Advice (CCA) Memorandum 201736021, Sept. 8, 2017, considered the following issues:

  1. If Line 3 on Form 2848, Power of Attorney and Declaration of Representative, lists an income tax return to which an International Information Return (IIR) must be attached, such as Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, does this Form 2848 also cover the civil penalty associated with that IIR, thus allowing the IRS to discuss the IIR penalty with the designated representative?
  2. If Line 3 on Form 2848 lists an income tax return to which an IIR is not required to be attached, such as Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, does this Form 
  3. 2848 cover the civil penalty associated with that IIR, thus allowing the IRS to discuss the IIR penalty with the designated representative?
  4. If a representative designated on Form 2848 prepared Form 1120, U.S. Corporation Income Tax Return and Form 5471, and the taxpayer subsequently submits another Form 2848 designating a different representative and listing Form 5471, but not Form 1120, may the IRS discuss with the second representative the penalties associated with both Forms 1120 and 5471 or only those penalties associated with Form 5471?
Background
Many IIRs must be filed with the IRS, such as Form 3520, Form 5471, Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.

In some cases, the IIR should be attached to an income tax return. Examples include  Form 5471, which must be filed with the filer’s income tax return. In other cases, the IIR should not be filed with the filer’s income tax return, but should be filed separately, such as Form 3520. 

When an IIR is incomplete when filed, filed late or not filed at all, a civil penalty under IRC secs. 6038, 6038A, 6038B, 6046, 6048, 6677 or 6679 may apply. The taxpayer may have already designated a representative on Form 2848, for a certain tax return, but not specifically for the IIR that has given rise to those penalties. 

Because a civil penalty may become an issue, the taxpayer may want an already designated representative to discuss the applicable penalty with the IRS. Or, an examiner during an audit of a taxpayer who has designated a representative for a specified tax return and a specific year, may discover that the taxpayer may be liable for a penalty related to an IIR for the same tax year as the one on the Form 2848. Therefore, questions have arisen as to whether Forms 2848 that the taxpayer previously executed extend also to the penalties related to the IIRs under the three issues described above.

IRS Analysis 
Form 2848, which a taxpayer uses to designate an eligible person to represent the taxpayer before the IRS, informs the IRS of the scope of authority between the taxpayer and the representative. [See United States v. Pappas, 806 F. Supp. 1 (D.N.H. 1992)]. By signing Form 2848, the taxpayer authorizes the eligible representative to receive confidential tax information and to perform the acts specified on the form, for the types of tax, tax forms, tax periods and tax matters specified by the taxpayer on the form.

Form 2848 must include, among other information, a description of the matters for which representation is authorized, including, if applicable, the type of tax involved, the federal tax form number, the specific year(s) or period(s) involved (and in estate matters, the decedent’s date of death) and a clear representation of the taxpayer’s intention concerning the scope of authority granted to the recognized representative.

Answers to the Above Questions
  1. No. Forms 2848 that list only a specific return cover representation for penalties, payments and interest related only to that specific tax return and not to other returns, regardless of whether the other returns are attached to the return specified on the Form 2848.
  2. No. Forms 2848 that only list a specific return cover representation for penalties, payments and interest related only to that specific tax return and not to other returns that may be filed separately.
  3. The IRS may discuss with the second representative only those penalties associated with Form 5471.
CCA Observation 
“We recognize that the current form instructions are not a paragon of clarity on this issue. It might be useful to amend the form instructions to specifically provide whether penalties associated with forms that are or should be attached to a certain ‘parent’ tax return are within the scope of representation if Line 3 of the Form 2848 lists only the parent form.”

Stuart R. Josephs, CPA has a San Diego-based Tax Assistance Practice (TAP) that specializes in assisting practitioners in resolving their clients’ tax questions and problems. He is chair of the Federal Subcommittee of CalCPA’s Committee on Taxation.

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