IRS approves third-party checkbox initiative.

Beginning with the 2001 filing season, with the "check of a box," paid preparers who have their clients' permission will be able to work directly with the IRS to resolve tax return processing issues (IR-2000-23). The checkbox will be available for all Forms 1040 (except Telefile).

Currently, practitioners and other paid preparers must file Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Third Party Authorization Disclosure, to discuss any details of a return, including how it was prepared, payment and refund issues and mathematical errors. Once the new initiative is implemented, a taxpayer's designee will be permitted to speak directly to IRS Customer Service Representatives over the phone to provide requested information and answer questions.

Each year, approximately 8 million pieces of correspondence specifically about processing tax returns are sent out during tax season. Up to 90% of the issues raised in these letters could be resolved over the telephone with a paid preparer, drastically reducing the correspondence burden on taxpayers and the Service.

Further, it is estimated that over a million hours could be saved with the elimination of correspondence between the IRS and preparers by allowing the Service to deal directly with the designees. Taxpayers spend an estimated 75,000 hours preparing Forms 8821. Because issues (such as processing disputes) will be resolved immediately, additional time will be saved in eliminating unnecessary post-filing contacts. It is estimated that over a million taxpayers will use the checkbox option instead of filing Form 2848. This adds up to 1.9 million hours initially not being spent in preparing these forms. Twenty-seven percent of the notices sent to taxpayers for processing issues are for paid preparer returns. Taxpayers should save approximately 779,000 hours by opting to automatically refer return processing issues to their preparers.

Attorneys, CPAs, enrolled agents and actuaries will still need a power of attorney to represent taxpayers in more complex matters. Federal law and regulations prohibit anyone who does not meet Circular 230 requirements from representing clients before the IRS. This issue had been a stumbling block to the implementation of the Checkbox Initiative, until a clear distinction was established between limited third-party disclosure for the purpose of responding to issues and questions on a single year's return and issues that required a power of attorney. The Checkbox Initiative will eliminate the need for a power of attorney only for informational issues arising during return processing. Examples of issues still requiring an executed Form 2848 are examination matters, underreported income notices and appeals and collection notices.

The idea to use a checkbox has been proposed by stakeholder groups for many years. Many state revenue agencies are successfully using the procedure, to the delight of practitioners filing returns in those states. The AICPA has been among the groups that have endorsed this concept over the years. (Most recently, the South Florida Citizen Advocacy Panel (which includes members who are CPAs, attorneys and enrolled agents) has advocated the use of the checkbox.)

In a letter to Robert C. Wilkerson, IRS Assistant Commissioner (Customer Service), David A. Lifson, Chair of the AICPA Tax Executive Committee, said, "We are extremely grateful and encouraged by the Checkbox Initiative announced in IR-2000-23. For many years, the AICPA has requested procedures that would grant limited authority to third parties to discuss with the IRS factual issues regarding tax returns without the necessity of the third party obtaining a power of attorney. We regard the Checkbox Initiative as a good first step in creating such procedures."

The AICPA Tax Executive Committee also supports the expansion of the checkbox to other than paid preparers. "This third party authorization would be particularly helpful for many taxpayers who are most in need of assistance with their tax matters, such as the elderly, the incapacitated, and taxpayers who do not understand English." In announcing the proposal, Commissioner Rossotti indicated that expansion of the proposal to include friends and family would be considered in the future, after the initial proposal is implemented next year. Initially, however, the checkbox designation will be limited to paid preparers.

The AICPA Tax Executive Committee did make two recommendations for improving the usefulness of the Checkbox Initiative. First, it recommended a change in the manner in which a third party is notified of a problem. The AICPA would prefer that correspondence or telephone calls come directly to the third party rather than to the taxpayer.

Second, the AICPA recommended the expansion of the issues that could be covered by the checkbox procedure. It would like to see factual matters beyond those referred to in IR-2000-23. Issues such as CP-2000 notices generated from mismatched Forms 1099 should be included in the Checkbox Initiative; the AICPA does not believe that dealing with such matters would constitute representation requiring power of attorney.

Clearly the Service does listen to taxpayers' wishes. The Checkbox Initiative is something to look forward to in the next filing season.

FROM VAL W. OVESON, NATIONAL TAX ADVOCATE, INTERNAL REVENUE SERVICE, WASHINGTON, DC

Editor's note: Mr. Ely is the immediate past chair of the AICPA Tax Division's Relations with the IRS Committee. Ms. Butler and Mr. Oveson are committee members.