Payroll in Practice: 10.27.20

Practitioners’ questions are answered by a payroll and tax consultant who also is an enrolled agent licensed to practice before the Internal Revenue Service.

Question: I am payroll manager and am responsible for preparing Form 941. During the pandemic, I am working from home and was mailing the form to the chief financial officer for a signature and mailing. Rather than take the extra steps, the executive wants me to sign Form 941 and submit it to the IRS directly. I’m not an officer or owner. How should we set this up?

Answer: If you are a full-time employee, your employer may designate you as a representative by filing Form 2848, Power of Attorney and Declaration of Representative, with the Internal Revenue Service. The scope of the power of attorney may be limited by restricting the general authority granted by Line 5 of the form to the exact powers the employer wants you to have. There is a check box on Line 5 to authorize signing returns such as Form 941, Employer’s Quarterly Federal Tax Return. The IRS will assign a central authorization file number to you that belongs to you and should not be used by anyone else.

A caution regarding use of Form 2848 is that it revokes previously issued Forms 2848 unless the new form specifies the prior POAs that should not be revoked. Care must be taken to assure that there are no unintended revocations of prior POAs, such as for a tax professional who may be representing your employer in a tax matter. Line 6 on the form is use to prevent revocation of prior 2848 authorizations.

Given that, it may be worthwhile taking a look into an alternative signature method for the CFO. The signature could be set up to be made electronically. This is authorized under Revenue Procedure 2005-39 available at www.irs.gov/businesses/revenue-procedure-2005-39

Essentially the procedure provides that officers using a facsimile means of signature remain personally responsible for ensuring that their facsimile signature is affixed to returns. The person filing the form must retain a letter, signed by the authorized officer, that declares under penalties of perjury that the facsimile signature appearing on the form is the signature adopted by the officer and that the facsimile signature was affixed to the form by the officer or at the officer’s direction.

The letter must list each return by name and identifying number. The letter should not be sent to the IRS unless requested by the agency but must be maintained for at least four years after the due date of the tax return or the date the tax is paid, whichever is later.

From your standpoint, important concerns include whether it is appropriate for you to sign the form and the potential of being considered a responsible person with regard to tax deposit compliance. The instructions for Form 941 specify that the form should be signed by an owner or senior officer of the business--someone who has the knowledge and authority to ensure the taxes are being handled properly.

Signing the forms indicates to the IRS that the signer is in a position to have the responsibility and the authority to ensure that the taxes are properly withheld and deposited. People that have that control may become personally liable for taxes that the business failed to withhold or deposit. This can result in assessment of the unpaid taxes under the trust fund recovery penalty to individuals the IRS identifies as responsible.

For example, an individual was contacted by the IRS as a possible “responsible person” for purposes of the trust fund recovery penalty. The business had failed to pay taxes it withheld from employees to the government. The reason given for the contact was that this individual had, in the past, signed the company’s 941 Forms. On that basis, the IRS assumed that this person still was in a position to make sure the taxes were properly paid.

There are other duties employees should be careful about assuming. For example, signing checks. In another case, a secretary in an organization was authorized to sign checks. The corporate officers would direct which checks were to be written and signed, but the secretary but had no authority to issue any checks that were not so directed. The IRS contacted the secretary as a possible responsible person because of the signature authority. The IRS considered that signing authority to indicate that the secretary could have paid the taxes.

While Form 2848 grants you the authority to sign the forms. It does not mean that it is otherwise appropriate for you to sign them. That is between you and the owner of the business.

By Patrick Haggerty

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.