Representation before the IRS · Power of attorney

Signature authority: consents, closing agreements, and refund checks

A power of attorney that authorises representation lets a practitioner argue, negotiate, and receive information. It does not automatically let them bind the client. The acts that commit a taxpayer to something — giving up time, settling finally, receiving money — are treated separately, and each has its own rule.

The rule

Scope is whatever the taxpayer clearly expressed. A power of attorney must contain a clear expression of the taxpayer’s intention concerning the scope of the authority granted (Reg. § 601.503(a)(6)). Authority to perform an act that binds the taxpayer therefore has to appear in that expression. On Form 2848 those acts are stated expressly rather than assumed from the general grant.

Extending the assessment period. Where, before the time prescribed for assessment expires, the Secretary and the taxpayer have consented in writing to assessment after that time, the tax may be assessed at any time before the agreed period expires, and the period may be extended again by further written agreements made before the previous one runs out (IRC § 6501(c)(4)(A)). A representative signs such a consent only if authorised to do so. The statute also requires the Secretary to notify the taxpayer of the right to refuse to extend, or to limit the extension (IRC § 6501(c)(4)(B)) — a right that belongs to the taxpayer, which is one reason the authority to sign it away must be given deliberately.

Closing agreements. The Secretary may enter into a written agreement with any person relating to that person’s tax liability — or the liability of the person or estate for whom he acts — for any taxable period (IRC § 7121(a)). Once approved, the agreement is final and conclusive, and may not be reopened except on a showing of fraud, malfeasance, or misrepresentation of a material fact (IRC § 7121(b)). The parenthetical in § 7121(a) is what allows a representative to sign one, and the finality in § 7121(b) is why that authority should never be granted casually.

Refund checks are different in kind. A practitioner may not endorse or otherwise negotiate any check issued to a client by the government in respect of a federal tax liability, including directing or accepting payment by any means, electronic or otherwise, into an account owned or controlled by the practitioner or any firm or entity they are associated with (Circular 230 § 10.31(a)). This is not a limit the taxpayer can waive. A power of attorney can authorise a representative to receive a refund check; nothing authorises them to cash it or to have it routed to their own account.

How it works in practice

The working question on any document is: does signing this give something up, or settle something, on the client’s behalf? If yes, check the authorisation before signing, and check that it names the matter and period in front of you.

Consents arrive from examiners near the end of the assessment period, often with a deadline shorter than the client’s availability. The temptation to sign under a general power of attorney is exactly the trap. Two things must be true: the representative holds express authority to sign a consent, and the consent itself is signed before the existing period expires — a consent signed afterwards is a nullity, because there is no longer a period to extend.

Closing agreements deserve a slower conversation with the client than they usually get. The finality under § 7121(b) means the ordinary routes for revisiting a year are gone, so a representative signing one is spending an option the client may not know they had.

How this has changed

The consent mechanism in § 6501(c)(4) is long-standing, but the notice requirement in subparagraph (B) came out of the taxpayer-rights reforms of the late 1990s, which also ended the IRS’s practice of taking open-ended waivers of the collection period. The check rule tightened more recently: the current § 10.31 dates from June 2014 and broadened the prohibition beyond physically endorsing a paper check to cover directing or accepting electronic payment into an account the practitioner or their firm controls, which is the form the problem actually takes now.

Exam focus

Three things recur. First, that authority to sign a consent extending the assessment period must be express, and that the consent must be signed while the period is still open. Second, the finality of a closing agreement under § 7121(b) and its three exceptions — fraud, malfeasance, misrepresentation of a material fact. Third, the check rule: a practitioner may receive a client’s refund check but may never endorse, negotiate, or route it into their own or their firm’s account.

Check yourself

1. A representative holds a Form 2848 authorising representation for a year under examination, with no additional acts stated. May she sign a consent extending the assessment period? (A) Yes, it is incidental to representation (B) Yes, if the examiner requests it (C) No — authority to sign a consent must be expressly granted (D) Yes, if she notifies the client afterwards Answer: C. Binding the taxpayer requires authority within the taxpayer’s expressed scope.

2. A consent extending the assessment period is signed two weeks after the original period expired. Its effect is: (A) It revives the period (B) It extends the period from the date signed (C) None — there was no open period to extend (D) It extends the period only for issues under examination Answer: C. Section 6501(c)(4)(A) requires the consent before the prescribed time expires.

3. A closing agreement approved by the Secretary may be reopened: (A) At the taxpayer’s request within two years (B) Only on a showing of fraud, malfeasance, or misrepresentation of a material fact (C) Whenever new evidence emerges (D) Never, in any circumstances Answer: B. Those are the exceptions to finality in IRC § 7121(b).

4. Which is permitted under Circular 230 § 10.31? (A) Endorsing a client’s refund check to collect a fee (B) Having the client’s refund deposited into the firm’s account and remitting the balance (C) Receiving the client’s refund check and giving it to the client (D) Accepting an electronic refund payment into an account the practitioner controls Answer: C. Receiving is not negotiating; the other three are what the section prohibits.