Page 94 - TaxAdviser_2022

of CPAs generally include tax-saving although the firm may disclose any The two avenues for this are Form 8821,
advice, so being specific about tax ser- indications of fraud that are observed Tax Information Authorization, and Form
vices can prevent a client from looking during the engagement. 2848, Power of Attorney and Declaration
to the firm to provide remuneration for Engagement letters should be re- of Representative.
a missed opportunity. viewed and revised on a continual basis, There are three key differences be-
at least annually, to incorporate changes tween these two avenues. Form 2848 can
Useful provisions to include in the tax law or other provisions be used only by someone with authority
Because firms may not have liability as needed. to practice before the IRS, such as an
protection in the event of a data breach attorney, CPA, enrolled agent, enrolled
(although this optional coverage is Challenges for small firms actuary, or enrolled retirement plan
recommended when available), an While the benefits are clear, implement- agent; it also grants power of attorney
engagement letter can offer additional ing engagement letters for all clients is (POA) to represent the client before
protection with a provision to disclaim undeniably challenging for smaller firms the IRS. Representation before the IRS
liability from a data breach that occurs with limited resources. But there are encompasses advocating for the client
through no fault of the firm. Reason- practical steps that can lessen the impact and providing information on behalf of
able measures must be taken to ensure and track the process better. the client.
security of data, but language providing Firms preparing less complex tax Form 8821 only allows the appointee
protection is helpful when reasonable returns may consider negative assur- to receive information, but the appointee
measures fail. ance engagement letters. Essentially, does not need any authority to practice
Practitioners should also consider such a letter provided to clients lays before the IRS or even need to be an
a conflict-of-interest waiver clause for out the terms and states that providing individual; businesses and entities can
related parties, divorcing couples, or information to begin work constitutes be appointed via the Form 8821. Form
multiple shareholders or partnership acceptance of those terms. This type of 8821 may be a viable option if a practi-
situations. These waivers can be a part engagement letter is not as good as one tioner is merely collecting data to file a
of the engagement letter or executed in requiring a signature acknowledgment return or, where the firm is the appoin-
conjunction with the engagement letter. but may provide some protection. tee, to allow unlicensed staff to request
The following points should also be In addition, electronic signatures can transcripts from the IRS. It also may be
included in the engagement letter: be used to streamline the process. The useful to accept a limited authorization
■ Alternative dispute resolution firm can send all engagement letters en under a Form 8821 during the process of
provisions; masse at the beginning of the year for determining whether to accept someone
■ Venue in the event of a civil claim; electronic signature or with organizers as a client. It allows the practitioner to
■ A clause to limit liability to a when sent. When data is received to receive information but makes clear to
percentage of fees, if allowed under begin tax preparation, a process must be the IRS representative and to the client
applicable state law; in place to verify that the engagement that the practitioner has not accepted
■ Termination date for services (to letter was signed before routing or as- the authority and responsibility to advo-
trigger the statute of limitation); signing the work. If no signature is re- cate on the client’s behalf.
■ Date by which information must be ceived, the firm should notify the client The final key difference is that a
provided by the client to complete that work cannot commence until the Form 8821 automatically expires after
the work on time; engagement letter has been signed and seven years, while a Form 2848 must
■ Language about filing extensions for should consider returning the paper- be revoked. With the termination of a
tax returns; work to the client with the engagement POA, the practitioner can no longer rep-
■ Statement of client asserting the letter requesting a signature for work resent the taxpayer for that tax period.
completeness and accuracy of the to commence. To revoke a Form 2848, the practitioner
data provided; should write “REVOKE” across the top
■ Disclaimer that the firm is not Choosing whether to of the Form 2848 that is being revoked
verifying or auditing data; represent a client via POA or and sign and date below the notation.
■ Provisions on data retention and who tax information authorization The revocation should be filed with the
is responsible for providing support- The ability to access information from Centralized Authorization File (CAF)
ing data in the event of a future audit; the IRS on behalf of a client is a neces- unit in the same manner as the original
■ Disclaimer that the firm is not taking sary component of the practice of most POA. If the original Form 2848 is not
steps to discover fraudulent activity, CPA firms and other tax practitioners. available, a signed and dated letter from

www.thetaxadviser.com February 2022 47