Every estate plan should have a power of attorney in which you give one or more people authority to act as agents on your behalf when you aren’t able to. Every estate planner and guide to estate planning will tell you that. What few will tell you is there are at least two important instances when the power of attorney (POA) won’t be recognized and followed.
The Internal Revenue Service (IRS) and Social Security Administration (SSA) don’t recognize traditional POAs. Your agents can possess a POA that’s gold-plated for every other purpose, yet it won’t help with those two agencies.
The IRS insists that it receive a Form 2848, “Power of Attorney and Declaration of Representative” before it will allow anyone to act on your behalf. The form was created primarily for enrolled agents, attorneys and accountants to represent their taxpayer clients in audits and negotiations with the IRS. But it’s also required when an agent, even a relative, attempts to handle your tax matters when you aren’t able to.
One of the tricks to Form 2848 is that it requires you to specify the tax matters and years for which the agent is authorized to act. A traditional POA to handle financial matters often contains blanket statements allowing the agent to take any or a broad range of actions on your behalf in certain matters.
Form 2848 requires you to list the type of tax, the IRS form number and the year or periods involved. Most people will have to list at least income, estate and gift taxes plus the applicable forms that you have filed in the past and might file in the future. If you’ve had to file other forms or deal with other types of taxes in the past or might in the future, these need to be listed in the form if you want the agent to be able to take action on your behalf.
MORE FOR YOU
You can list future years in the POA. But the instructions seem to indicate you have to list specific years. They state: “Do not use a general reference such as ‘All years,’ ‘All periods,’ or ‘All taxes.’ The IRS will return any power of attorney with a general reference.” You can use hyphens or words such as “through” and “thru.” For example, your Form 2848 can authorize someone to act on your behalf for tax years 2015-2030.
But there’s another trick. The IRS enters the data from Form 2848 into its computer data base known as the CAF system. The system is used by IRS employees to quickly determine if there’s a valid Form 2848 on file allowing a person to act on your behalf. But the IRS won’t enter into the system any years that are more than three years into the future when the form is received.
Another trick to the form is that in a married couple that files joint tax returns each spouse must separately complete and sign a form. You can’t execute a joint form.
Technically, the IRS might accept other POAs. The instructions to Form 2848 say so. But the POA must satisfy all the requirements of Form 2848 to be accepted as a substitute. I imagine most POAs don’t, since they won’t specify particular years and tax forms on which a person can act on your behalf. Also, whether an alternate POA is accepted depends on the IRS employee you deal with. I’ve been handling my parents’ financial matters for several years after they entered assisted living. The employees I’ve dealt with made clear they wanted to see only a Form 2848. Also, I’ve had to send copies of the forms at least three times. Apparently, they weren’t entered into the CAF system.
The SSA takes a similar approach. As I learned when researching my latest book, Where’s My Money?: Secrets to Getting the Most out of Your Social Security, the SSA states clearly on its web site that it doesn’t recognize POAs. When you need someone to manage your Social Security benefits, you contact the SSA and make an advance designation of a representative payee.
Created under a 2018 law, this feature allows you to choose one or more individuals to manage your Social Security benefits. The SSA then is required to work with the named individual or individuals in most cases. You can name up to three people as advance designees and rank them in order of priority. If the first one isn’t available or is unable to perform the role, the SSA will move to the next person on the list.
Someone who already is receiving Social Security benefits may name an advance designee at any time. Someone first claiming benefits can name the designee during the claiming process.
The designee may be named using your “my Social Security” account on the Social Security web site or by contacting the SSA via telephone (800-772-1213) or at the local field office. Designees also can be named through the mail by using Form SSA-4547 – Advance Designation of Representative Payee.
You can change the designees at any time.
The SSA will first evaluate a designee and determine the person’s suitability to act on your behalf. Once accepted, a designee becomes the representative payee for your benefits. The payee receives the benefits on your behalf and is required to use the money to pay for your current needs.
Representative payees generally must be individuals, but a representative payee also can be a social service agency, nursing home, or one of several other organizations recognized by the SSA to serve as payees.
If you don’t designate representatives, the SSA will name a representative payee on your behalf if it decides you need help managing your money. Relatives or friends can apply to be representative payees, or the SSA can choose someone.