A tax preparer had 2 clients get audited. 1 client paid the bill and closed out his case and the other client settled his case in US Tax Court. The tax preparer is now scheduled for a 6694 hearing. The tax preparer is being asked to come in and discuss issues related to these 2 clients tax returns. But there are no POA's on file and the tax preparer is not an authorized person to speak about these returns. Is there a conflict of interest here?
In my opinion, there is no need for the preparer to obtain POAs or Tax Disclosure Authorization forms from the clients in order to discuss their returns with the IRS. After all, the preparer has already certified that he prepared such returns based on all information of which he has knowledge. There is an inherent conflict of interest in most preparer penalty (and criminal preparer) cases between the preparer and the taxpayer, since the preparer will usually state that all of the items reported on the return was based upon information that the taxpayer provided to him, whereas the taxpayer will often claim (at the IRS's urging) that the preparer fabricated items on the returns. That conflict, however, does not hobble either the ability of the preparer and the taxpayer to tell their respective sides of the story regarding the challenged tax return.
Moreover, no unauthorized disclosure issues are presented by the preparer discussing the tax returns of clients whose returns form the basis of asserted tax return preparer penalties against him. In this regard, "the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding," I.R.C. Sec. 6103(h)(4)(B), and "such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding [i.e., the preparer] and the taxpayer which directly affects the resolution of an issue in the proceeding," I.R.C. Sec. 6103(h)(4)(C). In addition, as a practical matter, it would be impossible for the tax preparer to defend himself in an administrative proceeding before the IRS if he cannot discuss the tax returns and items which form the basis of proposed Section 6694 penalties.
I hope that this information is helpful to you. Good luck!
The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.
There's certainly a conflict of interest, as Mr. Stark points out. But the purpose of the hearing is to explore the tax preparer's role and knowledge in the returns and that specifically should not require a POA. The real issue is how to address whatever underlying causes exist that gave rise to the hearing in the first place.
Evan A. Nielsen is licensed to practice law in California and handles federal tax matters throughout the U.S. The information provided here is for educational purposes only and is not intended as legal advice for a particular matter. This response does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult an attorney.
The preparer probably does not need a 2848. The purpose of the 2848 is for the taxpayer to appoint the representative (CPA, lawyer, etc) to contact the IRS on behalf of the taxpayer, obtain confidential information about the taxpayer and his/her returns, etc. So, it's more of a mechanism to allow the service to give information as opposed to granting the practitioner the authority to disclose information. Here, the preparer likely received a summons or other form of court order requiring him to appear and disclose information. That being said, if this is not a criminal investigation, the preparer should cover his bases and at least try and get client authorization to waive any accountant-client privilege that may exist. For what it's worth, a preparer should include a provision in his/her engagement letter that effectively has the client consent to any and all disclosures of confidential information in the event of a summons, subpoena, etc, and also have client consent to paying the preparer for the time spent answering and/or complying with those orders. I hope this helps answer your question.