Tax professionals are trusted to navigate some of their clients’ most sensitive issues. One of the most critical yet often overlooked is preparing for the possibility that a client may one day lose the capacity to manage their own tax affairs.

The IRS Form 2848, Power of Attorney and Declaration of Representative, is the gold standard for authorizing tax representation. Durable powers of attorney (DPOA) that name an agent to act on behalf of an incapacitated taxpayer can assist when a client can no longer sign form 2848 due to physical or mental incapacity. Let’s explore what every tax professional should know to protect their clients long before a crisis hits.

Understanding incapacity in the tax context

Per Black’s Law Dictionary, incapacity refers to a “[l]ack of physical or mental capabilities,” or the inability to have legal consequences attach to one’s actions. When taxpayers become legally incompetent, they cannot authorize another person to act on their behalf using the typical Form 2848 process. This creates a significant challenge when the IRS must be contacted or a taxpayer needs representation, unless a proactive plan is in place.

The role of durable powers of attorney (DPOA)

A durable power of attorney (DPOA) is a legal document that grants another individual (the attorney-in-fact) the authority to make decisions for the principal, even after the principal loses mental or physical competence. Durability means the document remains effective after incapacity, unlike standard powers of attorney, which typically terminate when the principal becomes incompetent. Commonly used in estate planning, DPOAs can also be drafted to cover federal tax matters.

Why most DPOAs fall short for IRS purposes

The IRS has strict procedural requirements under 26 CFR §601.503(b), detailed in IRS Publication 216, that durable powers of attorney must meet for federal tax matters. Most general-purpose DPOAs don’t include:

• A description of the specific tax matters authorized
• The type of tax (income, gift, etc.)
• The federal tax form number
• The tax year(s) or period(s)

Without this information, the standard DPOA alone isn’t enough to satisfy the IRS.

Bridging the gap: using Form 2848 alongside the DPOA

If a DPOA doesn’t meet IRS standards, it can still be useful. However, the appointed agent must complete and sign Form 2848 on behalf of the taxpayer. The DPOA must clearly grant authority to handle tax matters. A broadly worded DPOA authorizing the agent to perform “any and all acts” the principal can do may be sufficient, though it’s best if federal tax representation is explicitly referenced.

What happens if the DPOA is inadequate?

If the DPOA lacks the necessary language or specify that an agent has the power to address tax matters, the agent may need to pursue legal guardianship or conservatorship through a state court. Only then can the appointed fiduciary file Form 56, Notice Concerning Fiduciary Relationship, with the IRS to formalize the relationship. This process is time-consuming and potentially costly, creating critical delays in resolving tax matters.

Steps tax professionals should encourage clients to take

1. Coordinate with attorneys to include language for tax representation in DPOAs.
2. Review existing DPOAs for clients at risk of incapacity to assess whether an update is needed.
3. Educate clients about preparing for incapacity as part of a holistic tax and financial plan.
4. Keep IRS Form 2848 templates that an attorney-in-fact can complete.

Be prepared before it’s too late

As tax professionals, we play a pivotal role in ensuring that we can serve our clients, no matter what life throws their way. That means planning ahead, understanding the limits of standard DPOAs, and working collaboratively with our clients and their legal professionals to ensure everything is in place before the taxpayer becomes incompetent.

For more details on the rules governing durable powers of attorney and IRS representation, refer to IRS Publication 216 and Form 2848.

On April 17, 2025, the IRS issued Notice 2025-23, announcing its intent to publish a notice of proposed rulemaking (NPRM) suggesting the removal of a set of rules that previously designated certain partnership-related basis-shifting transactions as transactions of interest (TOIs). It also includes withdrawing Notice 2024-52. This change provides immediate penalty relief for disclosures on Forms 8886 and 8918, but for most NATP members, it’s unlikely to change your day-to-day work.

Potential impacts

The IRS and Treasury intend to remove Reg. §1.6011-18. These regulations identified certain partnership-related party basis adjustment transactions as TOIs and subject to rules for reportable transactions. These identified transactions typically involved transactions within partnerships where one partner’s basis in property increased without a corresponding income recognition, involving related parties. These rules looked especially hard at transactions designed to create mismatches or distort tax attributes. To be subject to the rules, the basis increase must exceed $10 million for 2025 or $25 million for tax years before 2025 and during the six-year lookback period.

Examples include:

• Property distributed to a related partner that triggers a §734(b) adjustment
• Property distributed to a related partner whose basis in the property is increased under §732(b)
• Those electing basis increases under §732(d) within two years
• A transfer of partnership interest to a related party that triggers a §743(b) adjustment

Examples of these transactions can be found in the regulations the IRS and Treasury intend to remove.

Because of dollar amount thresholds in place that trigger the reporting requirement, most NATP members were not impacted by the original disclosure requirement.

Current impacts

Notice 2025-23 provides relief by waiving penalties under:

• Section 6707A(a) for participants in these transactions
• Sections 6707(a) and §6708 for material advisors

IRS Notice 2024-54, which outlined proposed additional regulations on these transactions, has been withdrawn.

What you should do

If your client base includes partnerships with low-valued assets, or none at all, you likely don’t need to take any action.

If you serve partnership clients impacted by, or have been preparing disclosures under the current TOI rules, you can now rely on Notice 2025-23. This means:

• You may pause those disclosures
• Penalties related to those transactions are no longer applicable
• Continue maintaining documentation in case future guidance is issued

NATP perspective

While this change represents a notable policy shift at the IRS level, it does not represent a major development for the vast majority of NATP members. However, we will continue to monitor whether the IRS will reintroduce new guidance in the future and keep you informed.

As always, NATP is here to support you with insight and clarity on regulatory changes, whether widespread or niche.

Question: An unmarried individual, Samantha, filed her income tax return for 2024 on April 11. Samantha’s adjusted gross income (AGI) was $5,000 and had no federal income tax liability. She had $180 of income tax withheld during 2024. Samantha estimates that she will have approximately the same amount of AGI for 2025 and no income tax liability. On April 25, Samantha started a new job and believes she was exempt from federal tax withholding. Is she correct?

Answer: Yes, she is correct.

An individual may claim an exemption from federal income tax withholding in the current calendar year under the following conditions:

1. Had no federal income tax liability in the preceding calendar year, and
2. Anticipate having no federal income tax liability in the current calendar year [§3402(n)]

As long as Samantha meets these two conditions, she is exempt from the withholding and will have no income tax withheld from her paycheck.

To claim exemption from withholding, she should write “Exempt” on Form W-4, Employee’s Withholding Certificate, in the space below Step 4(c). Then, complete Steps 1(a), 1(b), and 5. Do not complete any other steps.