Circular 230 (Regulations Governing Practice before the Internal Revenue Service) governs those that are authorized to practice in front of the IRS: Attorneys, CPAs and Enrolled Agents. Practicing in front of the IRS means that those authorized may:
- Communicate with the IRS on behalf of a Taxpayer regarding the Taxpayer’s rights, privileges, or liabilities under laws and regulations administered by the IRS.
- Represent a Taxpayer at conferences, hearings, or meetings with the IRS.
- Prepare, file or submit documents, or advise on the preparation, filing or submission of documents, including tax returns, with the IRS on behalf of a Taxpayer.
- Provide a Taxpayer with written tax advice on one or more Federal tax matters.
A Taxpayer uses IRS Form 2848 (Power of Attorney (POA) and Declaration of Representative) to authorize representation before the IRS.
The IRS may “By-Pass” a Power of Attorney
Internal Revenue Manual Section 18.104.22.168 states that the IRS can by-pass a Taxpayer’s Representative: “where a recognized representative has unreasonably delayed or hindered an examination, collection, or investigation by failing to furnish, after repeated requests, nonprivileged information necessary to the examination, collection or investigation, the Internal Revenue Service employee conducting the examination, collection, or investigation may request permission from his/her immediate supervisor to by-pass the representative and contact the taxpayer directly for such information”.
IRS defines a representative as having “unreasonably delayed or hindered collection by repeatedly”:
- failing to provide the taxpayer’s records or information upon request,
- failing to return telephone calls or respond to written correspondence,
- canceling scheduled appointments at the last minute without timely notification, or
- requesting extensions of time beyond established deadlines for submitting requested records or information.
A “By-Pass” permits the IRS to directly contact a Taxpayer
Internal Revenue Code (IRC 7521(c)) states that an IRS agent, with the approval of an IRS group manager, “may notify the taxpayer directly that such officer or employee believes such representative is responsible for unreasonable delay or hindrance of an IRS examination or investigation of the taxpayer.”
The process to “By-Pass” a Taxpayer’s representative is composed of two parts. The first part is a warning and the second part is the actual by-pass. The Group manager will send Letter 4020-A, Warning Letter for By-Pass Procedures for Preparers Covered under Circular 230, to advise the representative of his/her responsibilities under Circular 230 and conveying advance notice of a possible “By-Pass” because the representative is violating Circular 230. Letter 4020-C, Final Bypass, is sent by the IRS Territory manager.
Taxpayers ought to know who they are appointing as POA
IRS authorization to “By-Pass” a POA can put a Taxpayer at risk; as the IRS then has the right to contact a Taxpayer directly. IRS indicators of Practitioner misconduct are:
- Pattern of Inappropriately Attempting to Influence Service Employee
- Pattern of Delay
- Pattern of Significant Omissions
Don’t be a Victim of your own Making
Taxpayers need to choose a POA wisely. There could be a situation where a Taxpayer may not be aware that a Representative is procrastinating, misrepresenting a Taxpayer, or not cooperating. If IRS believes that both a Taxpayer and Taxpayer’s Representative are intentionally uncooperative, the IRS may issue a Summons to secure the information requested.