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IRS Guidance Clarifies When Company Employees are Subject to Circular 230, Requiring a Power of Attorney in LB&I Examinations

Tax Alert

The Internal Revenue Service (IRS) Office of Professional Responsibility (OPR) published guidance this week in response to uncertainty relating to the interaction of (1) Form 4764, Large Business and International (LB&I) Examination Plan (Examination Plan), (2) Form 2848, Power of Attorney and Declaration of Representative (Power of Attorney), and (3) Circular 230. This guidance explains when an employee of a company that is involved in an LB&I audit must provide the IRS with a Power of Attorney, executed by an authorized officer of the company, in order to represent the company in its dealings with the IRS about the audit. The Examination Plan usually lists by name the company's employees who will be involved in an IRS audit and authorizes such employees to take certain actions. However, the OPR guidance explains that the Examination Plan operates as an authorization to receive tax information, similar to a Form 8821 (Tax Information Authorization), but that a Power of Attorney must be provided to the IRS in order to enable the more involved interactions that these employees may have with IRS personnel pursuant to the Examination Plan, such as when an employee advocates, negotiates, or disputes IRS positions on behalf of the company.


An Examination Plan is designed to set forth the ground rules for interactions between a taxpayer (and its personnel) and the IRS personnel conducting the audit. The Examination Plan typically includes: identification of IRS personnel involved in the examination, procedures governing the examination, timeframes for the taxpayer to provide the IRS with information and documentation, and a schedule for providing IRS examination personnel with access to the taxpayer's records. In addition, an Examination Plan includes a "Communications Agreement," which sets forth the contact information for the taxpayer's employees who are allowed to: (1) provide information to the IRS, (2) discuss tax matters or adjustments, and (3) receive information and adjustments from the IRS.

A taxpayer that chooses to be represented before the IRS must execute a Power of Attorney in favor of the designated representative. An executed Power of Attorney authorizes the IRS to communicate with the representative and allows the representative to act on the taxpayer's behalf relating to matters described in the Power of Attorney. A Power of Attorney executed on behalf of a corporate taxpayer must be signed by a duly elected officer or director of the corporation, as set forth in the corporation's articles of incorporation or by-laws.

A corporation's officers and full-time employees are allowed to represent the corporation before the IRS; however, officers or employees who choose to represent the corporation are subject to Circular 230 regulations. Circular 230 regulates representatives who "practice" before the IRS. The term "practice" includes "all matters connected with a presentation to the Internal Revenue Service … relating to a taxpayer's rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service." This broad definition also includes individuals who communicate with the IRS or represent a taxpayer at a conference, hearing, or meeting.

Circular 230 and LB&I Examination Plan Guidance

Circular 230's broad definition of "practice" created uncertainty for both the IRS and LB&I taxpayers because it was unclear whether an employee who communicated with the IRS, as authorized by an Examination Plan but without a Power of Attorney, was "practicing" before the IRS. In the recent guidance, OPR addressed this uncertainty and provided clarification for both the IRS and LB&I taxpayers. First, OPR determined that an Examination Plan does not replace a Power of Attorney, and that depending on the level of interaction pursuant to the Examination Plan, a Power of Attorney may be necessary. At one end of the spectrum, an employee who communicates with the IRS pursuant to an Examination Plan but only provides information to, or receives information from, the IRS, is not "practicing" before the IRS, according to OPR, because the employee does not perform any "representation activity." Therefore, an employee only acting within these parameters would not be subject to Circular 230 and would not need a Power of Attorney. At the other end of the spectrum, an employee whose discussions with IRS personnel can be characterized as advocating, negotiating, disputing, or otherwise going beyond "mere delivery of facts, general explanation, or acceptance of materials," would be, according to OPR, "practicing" before the IRS and would be subject to the provisions of Circular 230. In that event, the authority to act on behalf of the company set forth in the Examination Plan would be insufficient and the company would have to execute a Power of Attorney authorizing the employee to interact with the IRS on the company's behalf.


OPR's guidance clarifies that employees of LB&I taxpayers whose activities pursuant to an Examination Plan are limited to submitting or receiving tax information will not be treated as "practicing" before the IRS and will not be subject to Circular 230 or need a Power of Attorney. Stated differently, the guidance clarifies that the authority granted solely by an Examination Plan (i.e., in the absence of an accompanying Power of Attorney) is limited to providing and receiving information. When an employee engages in the discussions envisioned by the Examination Plan and those discussions become involved enough to be advocating, negotiating, or disputing (i.e., more than mere submission or receipt of tax information), the guidance provides that the employee is "practicing" before the IRS, would be subject to Circular 230, and would need a Power of Attorney. Company tax personnel involved in IRS audits will wish to review the provisions of present and future Examination Plans to determine the permissible scope of their activities in interacting with IRS examination personnel during the audit without a Power of Attorney and to determine when a Power of Attorney will be required. In addition, company personnel acting pursuant to a Power of Attorney to represent the company during an IRS audit will wish to determine the scope of the provisions of Circular 230 that may thereby become applicable to them. 

For additional information, please contact any of the following lawyers:

Larry Gibbs,, 202-626-6005

George Hani,, 202-661-6428

Patricia Sweeney,, 202-626-5926

Nicholas Metcalf*

*Former Miller & Chevalier attorney

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