What is a Power of Attorney (POA)?
A POA is a legal document that grants someone, known as the “agent” the authority to act on behalf of another person, known as the “principal,” in various legal and financial matters.
It is important to understand there are many kinds of POAs, designed for many different legal situations, ranging from simple tax documents to preparing for emergencies where one individual may need another to act on their behalf due to extreme illness, or death.
The POAs used by accounting firms are very limited in scope and relate only to tax matters. At Online Accounting we like to file two POAs for every client, one for the IRS also known as a form 2848, and one with the client’s state of residence.
Our clients have full control over what permissions we are granted on these documents, they can limit the number of years we can access and what kinds of information we can access, like payroll, personal income tax, and business income tax.
POAs are a valuable tool for accountants for three main reasons: tax history and information, representation, and decision-making.
1. Tax History and Information
With a POA on file, we can access our client’s financial information and records from the IRS and/or State Tax Franchise Board.
For example, if a client tell us they don’t know if they filed the prior year’s tax return or if they made a payment to the IRS, we can pull a “transcript” that will show if a tax return was filed and/or if payments were made and posted in the IRS system.
With a POA on file, we can communicate with tax authorities on our client’s behalf, to handle issues as they surface.
For example, the most common issue that comes up is payment discrepancy. It is common for the IRS, or a State, to apply a payment to the wrong period. With permission to represent our clients before these agencies we can take charge of the process and get that payment applied to the correct time period.
3. Decision Making
A POA may include provisions that authorize an accountant to make some decisions on financial matters. This could involve managing investments, executing contracts, or making strategic financial choices. Here at Online Accounting, we require our clients to make their own decisions on all matters, but we are here to help weigh the options and provide advice.
The Bottom Line
We collect POAs so we can pull tax transcripts and represent our client if an issue comes up. Locating documents or communicating with the IRS and other tax agencies can be a frustrating and time consuming process, but as tax professionals equipped with the right tools we do everything we can to ensure it is a hassle free process for our clients, and POAs are part of that toolset.
For another example, if a client received a 1099 from a mortgage company but cannot find it, they can let us know and we will pull a transcript from the IRS. Likewise, if a client gets a letter from the IRS saying they didn’t pay a tax bill, but they did, we can represent them throughout the process of getting the payment applied properly.
Before signing a POA of any kind, it is very important for the principal to read each section carefully, ensuring they understand the permissions they are granting their representative. Permissions can be revoked at any time the principal wishes, by contacting either the IRS for form 2848 or their State Tax Franchise Board.