Payroll in Practice: 6.1.21

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: Our accounting firm prepares payroll tax returns for clients. Can we sign the returns for the clients?

Answer: The Internal Revenue Service makes a general determination about who can sign payroll tax returns. Usually the signer is the employer or an officer of the employer. The IRS wants to assure that the person who signs a return is someone who knows the circumstances of the business and can assume liability for the accuracy of the return. More specifically, the individuals who may be designated to sign the returns depends upon the employer’s entity classification.

If the business is a sole proprietorship, the owner of the business should sign the return.

For companies, including a limited-liability company that has elected to be treated as a corporation for federal tax purposes, authorized signers might include the president, vice president, or other principal officer duly authorized by a formal action.

If the business is a partnership, including a limited-liability company that is treated as a partnership for federal tax purposes, or an unincorporated organization, the authorized signer roles include a responsible and duly authorized member, partner, or officer having knowledge of the organization’s affairs.

If the business is a single member limited-liability company treated as a disregarded entity for federal tax purposes the returns should be signed by the owner of the business or a principal officer of the owner who is authorized to sign. This depends upon the entity type of the owner. For example, for an LLC treated as a sole proprietorship, the signer should be the individual who owns the business. For a single member LLC owned by a corporation, the signer should be an appropriate officer of the corporation.

If the business owner is a trust or estate, the returns should be signed by the fiduciary of the trust or estate.

Beyond the general authorized roles, specified forms may be signed by a duly authorized agent of the taxpayer, provided a valid authorization was filed with the IRS.

There are three ways to accomplish this:

• Form 2678, “Employer/Payer Appointment of Agent,” is used by the employer to request IRS approval of appointment of an agent to perform payroll functions for the employer. This is also known as a Section 3504 agent. In addition to other duties, a 2678 agent files an aggregate return for all employers and clients using the agent’s employer identification number. Because the returns are filed under the agent’s employer identification number, the agent is the authorized signer. A 2678 agent acts as the employer and assumes liability, along with the employer/client, for the employer’s Social Security, Medicare, and income tax withholding responsibilities.
• Form 8655, “Reporting Agent Authorization,” is used by the employer to appoint an agent to perform payroll functions for the employer. In addition to other duties, a Form 8655 agent signs and files separate returns for each client using the employer identification number of the client/employer. Generally, the forms must be filed electronically when e-filing is available.

An 8655 agent does not assume employment tax liability. Instead, the employer/client remains liable for ensuring that all returns are filed timely and that all deposits and payments are made timely.

A payroll service provider that is not an 8655 agent generally may not sign the returns for the client/employer. The service provider prepares a separate return for each client using the client’s employer identification number and may file the return after the person authorized by an employer or client has signed the return. Like a Form 8655 agent, the payroll service provider does not assume payroll tax liability.

• A Certified Professional Employer Organization does assume liability for the employees covered under an agreement with the customer who would otherwise be liable as a common-law employer. A certified PEO authorized officer signs the forms because the CPEO is deemed to be the employer. The common-law employer is generally relieved of employer responsibility. A certified PEO uses Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement, to notify the IRS that a certified PEO contract between a certified PEO and a customer has started or ended.

The form accounting firms usually associate with authorization to act on behalf of a client is Form 2848, Power of Attorney and Declaration of Representative. However, Form 2848 is not set up to authorize an agent to sign tax returns except, under certain limited circumstances, income tax returns.

By Patrick Haggerty

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