Summary
In November 2022, the IRS updated its guidance regarding who can sign Form 2848, Power of Attorney and Declaration of Representative (POA), submitted on behalf of a limited liability company (LLC) treated as a partnership or disregarded entity for federal income tax purposes.
The Upshot
- Under the updated guidance, if an LLC is treated as a partnership, the person authorized to sign a POA submitted to the IRS on its behalf depends upon whether the tax item at issue is determined at the partner or partnership level, whether the tax item is subject to partnership audit rules enacted in the Bipartisan Budget Act of 2015 (BBA), and what tax is at issue.
- If an LLC is a disregarded entity (DRE) owned by an individual, the POA must be signed by that individual.
- State law partnerships that are treated as partnerships for federal income tax purposes are subject to a similar rule as to who can sign a POA as one LLC with some variations.
The Bottom Line
For questions about these rules and other IRS issues, please contact a member of Ballard Spahr LLP’s Tax Group.
In November 2022, the IRS updated its guidance regarding who can sign Form 2848, Power of Attorney and Declaration of Representative (POA), submitted on behalf of a limited liability company (LLC) treated as a partnership or disregarded entity for federal income tax purposes. The IRS has refused to talk to counsel about matters if the POA did not satisfy the new rules.
LLC Treated as Partnership
If an LLC is treated as a partnership, the new IRS guidance explains that the person authorized to sign a POA submitted to the IRS on its behalf depends upon whether the tax item at issue is determined at the partner or partnership level, whether the tax item is subject to partnership audit rules enacted in the Bipartisan Budget Act of 2015 (BBA)1, and what tax is at issue.
|
Tax Item/Partnership |
Taxpayer |
Required POA Signatory |
|
Tax liability determined at the entity level (e.g., employment taxes). |
LLC |
Manager or a member who has state law authority to bind the LLC (the LLC Agreement or other state law authorizations determine who has such authority). |
|
Tax liability determined at the partner level (e.g., pass-through tax item (income, loss, credit, etc.)) and LLC is not subject to BBA. |
Each LLC member separately |
The member submitting the POA. |
|
Partnership entity level items under BBA rules and LLC is subject to the BBA rules. |
LLC |
Partnership Representative (PR) (or Designated Individual (DI) if the PR is an entity). The POA Instructions require the name on the POA to state: “[PR] as Partnership Representative for [Partnership].” |
|
Tax liability determined at the entity level under Subtitle A, Chapter 2-4 of IRC (e.g., self-employment, net investment income tax, foreign persons withholding, FATCA, etc.), and LLC is subject to the BBA. |
The LLC for non-BBA items and/or each relevant member for other items |
The member of the LLC authorized under state law to bind the LLC for non-BBA items and same as above for BBA items. |
|
Tax liability determined at the partner level (e.g., distributive share item) and LLC is subject to the BBA (i.e., tax year is 2018 or after, BBA exclusion does not apply). |
The LLC Member |
The member submitting the POA. |
LLC Treated as Disregarded Entity (DRE)
If an LLC is a DRE owned by an individual, the POA must be signed by that individual (not the individual’s spouse, even if the individual is married and files jointly) and the name and Social Security number of the individual must appear on the POA. If the sole member of the LLC is a regarded trust or estate, the trustee, executor, or fiduciary with the authority to bind the trust or estate must sign the POA and the employer identification number (EIN) of the trust or estate must be included.
If the POA is filed with respect to a matter involving employment taxes reported on Forms 940 or 941 series, the person signing the POA must be a member of the LLC authorized to sign for the LLC under state law rules.
State Law Partnership
State law partnerships that are treated as partnerships for federal income tax purposes are subject to a similar rule as to who can sign a POA as one LLC with some variations.
The general rule is that all partners must sign the POA for tax items not subject to the BBA rules. However, if one or more partners have authority under state law to bind the partnership, only such partner or partners are required to sign the POA. Because a general partner in most cases has the authority to bind a partnership, ordinarily, a general partner is the only partner required to sign the POA.
If the partnership is subject to the BBA, the PR is required to sign the POA. If the PR is an individual, he must note his title as “Partnership Representative,” if the PR is an individual. If a designated individual is signing on behalf of a PR entity, the individual must note his title as “Designated individual of [name of PR].”
Electronic Signatures
In September 2022, the IRS published guidance regarding signature requirements for POAs. Although the IRS allowed electronic signatures on many forms as part of COVID-19 emergency relief, the updated guidance clarifies that when a POA is submitted by mail or by fax (as opposed to through the new IRS online portal), the signature must be handwritten. Electronic signatures (including signatures by DocuSign) are not allowed.
For questions about these rules and other IRS issues, please contact a member of Ballard Spahr LLP’s Tax Group.
1: The BBA partnership audit rules apply to partnerships subject to those rules for tax years beginning in 2018 thereafter.
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