Picking a tax proxy

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There’s a line on income tax forms that should make solving routine filing problems easier.

When tax examiners find discrepancies on a return, they notify the taxpayer. In cases where the return was prepared by a pro, the taxpayer then has to turn the questions over to the preparer and fill out forms giving the preparer and the Internal Revenue Service permission to discuss and resolve the issue.

Now taxpayers can give the IRS permission to take a shortcut directly to the preparer or any other person who could help solve the tax issue. The IRS initiated this option to help speed up communication between taxpayers, practitioners and the agency and reduce paperwork for taxpayers and the agency.

The “Third Party Designee” area is just above the taxpayer signature line on the 1040, 1040A and 1040EZ forms (paper and electronically-filed versions). It asks, “Do you want to allow another person to discuss this return with the IRS?”

Additional information on the option is provided in the instruction book for each return. But basically, by checking the “yes” box, the taxpayer gives the IRS permission to call the person specifically named to answer any questions that may arise during the processing of the return.

The designee is authorized to:
Give the IRS any information that is missing from the return.
Call the IRS for information about the processing of the return or the status of any refund or payments.
Receive, upon request, copies of notices or transcripts related to your return.
Respond to certain IRS notices concerning math errors, offsets and return preparation.

The designee doesn’t have to be a person. It could be a corporation, firm, organization or partnership. And if you pay a preparer to file your taxes and want that person to handle any follow-up questions the IRS might have, simply write “Preparer” in the space for the designee’s name.

The taxpayer check-box authorization of a tax proxy does not give the preparer or other person the power to receive any refund check, bind a taxpayer to anything (including any additional tax liability) or otherwise represent a taxpayer before the IRS.

Altering authorizations
The authorization to act as your tax return designee will automatically expire one year from the due date of your return; for 2007 returns, that expiration of authority is April 15, 2009.

If you want to end the authorization before then, you must sent the IRS a written statement of revocation indicating that the designee’s position is revoked and noting the affected tax return. Make sure that you and your designee sign the statement.

If, however, you want to expand your designated agent’s authority with regard to your taxes, for example, to grant the person a power or attorney to represent you at a conference with the IRS, you will need to file Form 2848.

Additional details on taxpayer representation before the IRS can be found in Publication 947, Practice Before the IRS and Power of Attorney.

Freelance writer Kay Bell writes Bankrate’s tax stories from her Austin, Texas, home. She also writes two tax blogs, Bankrate’s Eye on the IRS, and Don’t Mess With Taxes.

— Updated: April 9, 2008