Filing IRS form 8821 should be a part of every tax professional's new client onboarding process. It helps protect your clients from issues by allowing you to access their tax information.
Table of Contents
However, power of attorney goes beyond just accessing a client's tax information. It also allows you to represent them in legal and financial matters. On this post, let's take a closer look at the importance of using IRS form 8821 in safeguarding your tax information.
Obtaining Taxpayer Information Through IRS Form 8821
When someone works with a tax professional, it's often necessary for the tax expert to have access to their private information. However, the IRS keeps this information confidential and requires that a form be filled out to grant someone access to it.
IRS form 8821 is an official document that allows individuals to authorize another person or company to inspect and receive their confidential information for a specified type of tax and year(s). It also includes instructions on how to retain or revoke authorization.
It's important to note that completing a form 8821 does not grant the designee power of attorney. It only permits them to access the tax information, which can be helpful if your client needs help filing a return or has an ongoing issue with the IRS.
For these reasons, making this form a part of your client signup process is a good idea. This will allow you to understand their situation fully and can be helpful for ongoing services.
Obtaining Taxpayer's Authorization
A vital feature of IRS form 8821 is that the taxpayer must handwrite their signature. This is required for any mailed or faxed documents, as well as any e-signatures on the IRS website.
Tax professionals often use this document to request specific tax information, such as a client's returns or income statements. Lenders also frequently utilize this document to verify income for loan applications.
The IRS requires third parties to inspect the signer's identity to protect a client's tax information's confidentiality. This is typically done by comparing a government-issued photo ID to the person signing the form, such as a driver's license or employer ID card.
If the requesting party cannot access a government-issued photo ID, they can use secondary verification documentation, such as a current utility bill or credit card statement. They must also attest that the signer is their client under penalty of perjury. This is similar to the process used for completing IRS Form 2848.
Obtaining Taxpayer's Signature
When submitting Forms 2848 and 8821, a tax professional must authenticate the taxpayer's identity. They can do this by providing documentation such as a current credit card statement or utility bill. This is also important if the taxpayer has recently changed their address, as the IRS will require proof of the new address to process an authorization.
The form asks for the taxpayer's information and allows them to specify which tax matters and years they want to share with a professional. It also allows a tax professional to grant permission to access information not recorded on the Central Authorization File system, such as civil penalty payments or healthcare-related fees that aren't return-related.
One of the benefits of this form is that it allows a tax professional to list their entire firm as an appointee rather than a single person. This can be especially useful if a client is working with multiple professionals on various projects or if the professional needs to take over the case from another team member.
Obtaining Taxpayer's Power of Attorney
The IRS has recently simplified both forms to simplify obtaining tax information and establishing representation. The new system allows taxpayers to accept or deny tax information and personal expression requests directly through their tax account.
This can be especially beneficial for borrowers who want to work with a tax resolution firm but are hesitant to sign a power of attorney. In these situations, a Form 8821 can be used instead.
Tax professionals can also use this form to authorize their clients' accounts. They can limit their access by listing specific types of information and years. Additionally, unlike a power of attorney, Form 8821 allows the appointee to be listed as an entire firm so that anyone currently working can access the client's information.
Finally, this form expires automatically, meaning that a taxpayer's authorization to view tax information doesn't need to be manually revoked as it does in the case of a power of attorney. This can help increase collaboration within a firm and ensure that the right people get the correct information.