A question I often get is, "what exactly is tax representation?" Initially I would think to myself," what? How do you not know?" But after taking a step back I realize that it is more than a fair question. Especially in a world when as tax professionals we don't always do the best job of explaining our different services.
Tax representation falls into the category of what I like to call taxanese. This is tax terminology that you as an every day person don't know but it's important for you to understand. I'm on a personal mission to fill the tax literacy gap one taxpayer at a time. So in this article I'll explain the following:
What is tax representation?
Tax representation vs. tax preparation.
Who can represent taxpayers?
Tax Representation
Tax representation is when an individual steps into a taxpayer's shoes and handles their IRS issue for them. That is exactly how I like to explain it to prospects, "I step into your shoes and talk to the IRS for you." When a taxpayer hires a tax representative the representative is like their substitute.
The tax representative steps in on their behalf to handle communication with the IRS. All taxpayers have the right to tax representation under the Taxpayer Bill of Rights. But this does not let the taxpayer off the hook. They still ultimately have responsibility for their tax situation.
So what is the point of tax representation?
Taxanese is rampant in the tax world. So when issues with the IRS arise most people don't know how to handle them. I never judge a taxpayer's tax competency or assume that they can handle the issue themselves. This is why having a representative is important. Once the representative's 2848, Power of Attorney and Declaration of Representative is on file with the IRS the representation can begin. It allows them to do the following:
Receive any mail from the IRS for the authorized years.
Request and access tax information - transcripts and data.
Discuss the account with the IRS.
Negotiate any tax debt with the IRS.
Set up a payment arrangement for IRS debt with the IRS.
Attend meetings on the taxpayer's behalf.
In some cases the representative is also allowed to sign and receive refunds, on behalf of the taxpayer. The taxpayer must authorize these actions on the Form 2848. This is not a service that I offer my clients but some tax professionals do.
Tax representation alleviates the taxpayer from having to become a tax expert. This could potentially make their situation worse. Investing in tax representation can help the taxpayer put their tax issue behind them. If the taxpayer cannot afford to hire anyone they can receive assistance from the low income taxpayer clinic.
Tax Representation vs. Tax Preparation
Tax representation is not a guaranteed service when a taxpayer purchases tax preparation. After speaking to taxpayers for the past decade I've come to realize that is a very common misconception. Taxpayers feel that when they get their taxes prepared they should automatically get representation too. But that is not the case.
Preparation is an after the fact act of compliance with the Internal Revenue Service. It consists of reporting income and calculating a tax liability on a tax return. Anyone with a preparer tax identification number (PTIN) can do this. The barrier to entry for tax preparation is very low. Taxpayers should take caution when searching for a tax preparer. However, it takes more than a PTIN to represent a taxpayer.
There are many unqualified tax preparers due to the low barrier of entry. Taxpayers should beware of scammers. For help with choosing a tax professional check out Episode 16 of Tax Relief with Timalyn Bowens: How to Choose a Tax Professional.
Tax representation is a highly specialized practice that is deeper than compliance. Tax representation is surgery on a tax situation. A reputable tax professional will be able to stop the bleeding of the situation and help resolve the issue. This involves coming to an agreement with the IRS that will satisfy them, and not break the taxpayer.
It includes, but is not limited to, responding to notices, calling the IRS, and receiving mail. These are not services that are automatically included with tax preparation. Not all tax preparers can offer tax representation.
Who can represent taxpayers?
The IRS has only authorized 3 types of tax professionals to represent taxpayers. The professionals that can represent taxpayers before the IRS are the ones with the following credentials:
Certified Public Accountants (CPA)
Tax Attorneys
All other tax professionals have limited representation rights. That means that they can only discuss a return that they have prepared with the IRS. They can not make any decisions or negotiation on behalf of the taxpayer.
Uncredentialed tax professionals may offer representation but they cannot fully offer that representation. They may be able to assist with paperwork. They can not call the IRS without you on the phone, receive your mail, or speak on your behalf in correspondence.
If you are an uncredentialed tax professional or newly credentialed and interested in learning how to offer these services sign up for my e-mail list. The Tax Representation Journey private podcast and article subscription will be launching on September 18th, 2023.
Timalyn S. Bowens EA is America's Favorite EA and Tax Expert who will work hard to find a customized legal solution for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states. As the host of Tax Relief with Timalyn Bowens and a YouTube content creator she empowers taxpayers to make educated decisions about their tax situation.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information..
It's ONLY my pleasure to clear up that common misconception.
Thank you for explaining that representation isn’t a part of preparation.