As CPAs and accounting professionals, we know that accessing a client’s information is critically important for tax planning, tax preparation, advisory services, and more. But without the right authorization, the IRS won’t release that data to you. This is where IRS Form 8821, “Tax Information Authorization”, comes into play.
If you’ve ever been stuck waiting for a client to locate their prior year tax records or struggled to verify missing tax information, then you’ll understand why having Form 8821 on file is a game changer.
Key takeaways about Form 8821
- Form 8821 grants designated professionals with limited access to specific client tax information, enabling them to assist with tax-related matters, but does not permit representation before the IRS.
- Provides accounts with access to client transcripts, account information, payment records, and filing statuses, which allows them to verify prior year information, identify discrepancies and unfiled returns, and provide more efficient tax planning services.
- Unlike Form 2848 (Power of Attorney), Form 8821 does not grant accountants the authority to represent clients before the IRS or make legal or financial decisions on their behalf.
- Provides a secure way for taxpayers to share necessary tax data while maintaining control over their financial decisions and privacy.
In this article, we’ll break down what Form 8821 is, how it differs from Form 2848 (Power of Attorney), how to fill out the form, common mistakes to avoid, and more.
What’s the purpose of tax information authorization?
Form 8821 allows accountants like you to retrieve important information about your client from the IRS. This information can include:
- Tax transcripts from prior years: Tax transcripts are essentially simplified versions of prior year tax returns. They summarize tax information such as income, deductions, credits, and tax payments.
- Prior year tax documents: The IRS may also provide you with tax documentation such as W-2s, 1099s, and brokerage information.
You can use this information to verify filing status, penalties, tax payment history, and prior year personal & financial information. This helps ensure that your current-year tax filings are accurate. Form 8821 can be an important element in tax planning, managing tax audits, and resolving disputes or discrepancies.
What about Form 2848?
Form 2848, titled “Power of Attorney and Declaration of Representative”, is an IRS form that allows taxpayers to give a trusted individual power of attorney (POA) or representative privileges. Taxpayers generally choose a very well-trusted individual for this task, and that individual is often their accountant.
POA privileges allow you to represent your client during IRS audits, appeals, and collections. It also allows you to sign documents on your client’s behalf.
What is the difference between Form 8821 and 2848?
Let’s break down the differences between Form 8821 and 2848…
| Privilege |
Form 8821 |
Form 2848 |
| Access to tax records |
Yes |
Yes |
| Representation with the IRS |
No |
Yes |
| IRS negotiation privileges |
No |
Yes |
| Ideal for… |
Tax planning & preparation, maintaining good standing, verifying basic info |
Managing IRS audits, resolving disputes, representing client, managing IRS communications |
Moving on, let’s find out why accounting firms pay attention to this form.
Step-by-step Form 8821 instructions
At this point, you might be wondering who needs to fill out Form 8821 as well as how to fill out, step by step. Let’s explain both elements below.
Who fills out Form 8821?
Form 8821 is a group effort. While you can fill out the form itself, your client must sign it for it to be valid. Once the form is filled out, you’ll send it to the IRS for approval. Read on below for our step-by-step process explaining how to fill out the form.
How to fill our Form 8821
Step 1 – Enter the tax information of the client you’re filling out the form for:
- Name and address
- Taxpayer identification number(s): usually an SSN for individuals or an EIN for businesses or nonprofits
- Daytime telephone number
- Plan number (if applicable): this number is only used if the client is an estate, trust, or retirement plan.
Step 2 – Enter the information of any designees:
Step 3 – Enter the types of tax information you need to retrieve from the IRS (make sure your client agrees with your choices!)
- Box (a) – Enter the type of tax information: income, employment, payroll, excise, estate, gift, civil penalty, etc.
- Box (b) – Enter the tax form number: Form 1040, 941, 720, 1041, etc.
- Box (c) – Enter the applicable years or periods: tax or fiscal year, quarter, month, etc.
- Box (d) – Enter any specific tax matters: for example, “prior year tax return transcript” or “prior year audit of schedule C expenses”.
Step 4 – Check boxes 4 or 5 (if applicable)
- Box 4 can be checked if you or the client only wants the IRS to share the client’s info for a one-time, special purpose that won’t be saved in their Centralized Authorization File (CAF) system.
- Box 5 can be checked if you or the client would like prior authorizations to remain active after the current Form 8821 has been filed.
Step 5 – Have your client review and sign the form
Send the form to your client and have them sign their name, date the signature, print their name, and include their title (if applicable). Your client can either sign the form by hand (by printing it), or use a digital signature such as a scanned image of their handwritten signature or a digital signature from a service like DocuSign or Adobe Sign.
Step 6 – Review for accuracy before submitting
Once the form has been filled out and signed, take a few minutes to review it to ensure that the included information is accurate and the signature looks correct.
How long does the IRS take to process Form 8821?
The IRS typically takes 2-3 weeks to process Form 8821 filings, but electronic requests, filed via IRS E-Services, could be faster.
Common mistakes to avoid for accountants
As with all tax documents, there are some common mistakes to avoid when dealing with Form 8821 such as:
- Entering incorrect tax info: such as SSNs or misspelled names.
- Forgotten signatures: the client must sign the document for it to be accepted.
- Storing Forms 8821 improperly: these forms contain sensitive data and must be stored securely with very limited access, just like any other sensitive tax document.
- Not getting Forms 8821 signed at onboarding: this form should generally be included in your engagement letter to new clients.
Form 8821 is an IRS document that accountants should be familiar with
Form 8821 is a simple but powerful tool that can help accountants save time, reduce client frustration, and help you resolve tax issues efficiently. By collecting and filing this form proactively, you can access critical data faster, provide more efficient client service, and avoid delays when handling IRS notices.
