What Is a Third Party Agent? Types, Duties, and How to End One

A third party agent is a person or entity you legally authorize to act on your behalf in business, financial, legal, or tax matters, so that their actions bind you as if you had taken them yourself. The three forms most people encounter are a registered agent for a business, an attorney-in-fact under a power of attorney, and a tax representative authorized to deal with the IRS. Each has its own rules for who can serve, what authority they hold, and how the appointment is created and ended.

How the Principal and Agent Relationship Works

Agency law rests on a simple idea. One person, called the principal, authorizes another, called the agent, to act on their behalf. Whatever the agent does within that authority is treated by the law as if the principal had done it personally. The scope of what you grant decides what the agent can legally do and what you are responsible for afterward.

Authority comes in two forms. Actual authority is what you explicitly hand over, through a signed document or spoken instructions, together with the additional steps an agent reasonably needs to take to carry those instructions out. If you authorize someone to sell your car, they have implied authority to sign the title transfer. As long as the agent stays within that authority, you are bound by what they agree to.

Apparent authority works differently. It does not come from what you told the agent. It comes from what a third party reasonably believes based on your behavior. If you introduce someone as your business partner and let them negotiate at trade shows, a vendor who signs a contract with that person can likely enforce it against you even if you never formally authorized the deal. The rule protects people who deal with agents in good faith and keeps a principal from disowning a transaction after the fact.

The Main Types of Third Party Agents

Registered Agents for Businesses

Every corporation and limited liability company must designate a registered agent, a person or entity that accepts legal documents on behalf of the business. This is the address where lawsuits, government notices, and compliance documents are delivered. The requirement appears in most state business codes, many of which follow the Model Business Corporation Act, so that anyone suing your company or any agency contacting it has a reliable physical location for delivery.

The registered agent’s office must be a physical street address in the state where the business is formed or registered to do business. A P.O. Box does not work, because service of process often requires hand delivery to a person at a real location. The agent must be available during normal business hours. That is why many businesses hire a professional registered agent service rather than relying on an owner or employee who might not always be at the office.

Letting this appointment lapse carries real consequences. The state can administratively dissolve your business, strip its good standing, or impose reinstatement fees. Even before dissolution, if nobody is at the registered address to accept a lawsuit, a court may authorize alternative service, and a default judgment can be entered against your company before anyone at the business knows about the case. Courts generally hold that a company is responsible for choosing a reliable registered agent, and a breakdown between the business and its agent is usually not enough to get a default judgment thrown out.

Attorneys-in-Fact Under a Power of Attorney

A power of attorney is the document you sign to give another person, called your attorney-in-fact or simply your agent, authority over your financial, legal, or personal affairs. This is the tool estate planners reach for most often, and it is the backbone of any plan for what happens if you cannot manage things yourself. Your agent might pay bills, manage investments, sell property, file tax returns, or handle insurance claims, depending on what the document grants.

The Uniform Power of Attorney Act, adopted in roughly 30 states plus the District of Columbia, provides a standardized framework for these documents. Under that act, a power of attorney is durable by default, meaning it survives your incapacity, unless the document specifically says otherwise. The act also requires that certain sensitive powers be expressly granted. An agent cannot make gifts, change beneficiaries, or modify a living trust unless you spelled out that authority clearly.

IRS Tax Representatives

Federal law allows you to appoint an attorney, CPA, or enrolled agent to deal with the IRS on your behalf.¹ The IRS offers several authorization levels depending on how much access and authority you want to grant, so the right form depends on what you actually need the representative to do.

Durable, Non-Durable, and Springing Powers of Attorney

The distinction between durable and non-durable powers of attorney trips up more people than almost any other part of the appointment process, and the stakes are high. A non-durable power of attorney terminates automatically if you become mentally incapacitated, which means it expires at the exact moment you are most likely to need someone acting for you. A durable power of attorney includes language stating it survives your incapacity, so your agent can keep managing your affairs if you no longer can.

In states that have adopted the Uniform Power of Attorney Act, every power of attorney is treated as durable unless the document says otherwise. In states that have not adopted the act, you may need to include an explicit durability clause. If you are creating a power of attorney for estate planning or long-term protection, confirm the document clearly addresses what happens if you lose capacity.

A springing power of attorney is a third option. Rather than taking effect when you sign it, a springing power activates only when a specified triggering event occurs, usually your incapacitation as certified by one or two physicians. The appeal is that you keep full control until you genuinely cannot manage your affairs. The drawback is that proving the trigger has occurred can create delays. Your agent may need to obtain medical certifications and present them to banks or other institutions before anyone will honor the document, and that process can take days or weeks during a crisis.

IRS Authorization Levels

The IRS recognizes three levels of third party access, and choosing the wrong one wastes time.

A third-party designee is the simplest option. You check a box on your tax return and name someone who can discuss that specific return’s processing with the IRS, such as refund status or basic filing questions. The authorization lasts one year from the return’s due date and does not let the designee represent you in audits or disputes.²
Form 8821, the Tax Information Authorization, lets someone inspect or receive your confidential tax information for specific tax types and periods. It does not authorize them to represent you, negotiate on your behalf, or sign anything. Any individual or organization can be named on Form 8821.³
Form 2848, the Power of Attorney, gives full representation authority. Your representative can communicate with the IRS, attend conferences and hearings, file documents, and advocate positions on your behalf. Only individuals, not firms or corporations, can be named, and they must be eligible to practice before the IRS, typically an attorney, CPA, or enrolled agent.⁴

If you are facing an audit, owe back taxes, or need someone to negotiate a settlement, Form 2848 is the one you want. Form 8821 fits situations where you simply need your accountant to pull transcripts or receive copies of IRS correspondence.³ Submissions can be made online, by fax, or by mail, with online and fax moving fastest. Once processed, the authorization appears in the IRS Centralized Authorization File (CAF).⁵

Who Can Appoint an Agent and Who Can Serve

To appoint an agent through a power of attorney, you must be at least 18 years old and have the mental capacity to understand what you are signing. The legal standard is not particularly high. You do not need to understand every nuance of property law or tax strategy. You need to comprehend that you are granting someone else the power to act on your behalf and the general scope of authority the document conveys. If there is any question about capacity at the time of signing, a physician’s evaluation or a witness who can testify to your lucidity becomes important protection against future challenges.

The person you name as agent generally must also be a legal adult. For a registered agent, the individual must reside in the state where the business is registered, or the entity serving as agent must be authorized to do business in that state. For IRS representation, the representative must be eligible to practice before the IRS. Attorneys, CPAs, enrolled agents, enrolled actuaries, and certain other credentialed professionals qualify.¹

Before appointing someone with authority over your finances, do your homework. Check for any history of financial mismanagement, lawsuits, or professional disciplinary actions. If you are appointing a professional, whether a registered agent service or a financial advisor acting as attorney-in-fact, confirm they carry errors and omissions insurance. That coverage protects you if the agent makes a costly mistake.

Fiduciary Duties Your Agent Owes You

An agent is not just someone doing you a favor. They are a fiduciary, which means the law holds them to a higher standard than an ordinary business counterpart. Under the Uniform Power of Attorney Act and common law principles that apply even in states that have not adopted the act, an agent with a power of attorney must:

Act in your best interest. Every decision should benefit you, not the agent. If your known wishes are clear, the agent must follow them. If not, the agent must act the way a reasonable person would in protecting your interests.
Act in good faith. No deception, no hidden agendas, no taking advantage of the position.
Stay within the scope of authority. An agent authorized to manage your bank accounts cannot start selling your house unless the document also grants that power.
Avoid conflicts of interest. The agent should not enter into transactions where their personal interests compete with yours. Self-dealing, where the agent buys your property for themselves or directs your money into their own investments, is one of the most common breaches.
Keep records. The agent must maintain reasonable records of every receipt, payment, and transaction made on your behalf, and must be prepared to account for everything if you, a successor, or a court asks.

An agent chosen specifically for professional expertise, such as a financial advisor managing investments, is held to a still higher standard. Performance is measured against what a professional with similar skills would have done, not what an ordinary person might have managed. If your agent breaches these duties, you or your estate can pursue legal action to recover losses and remove the agent.

What Appointing an Agent Costs

The cost of setting up an agency relationship depends on the type of agent and whether you use professional services.

Professional registered agent companies charge roughly $119 to $199 per year for standard service. Many offer discounted or free first-year rates when bundled with business formation services. These fees do not include state filing fees for the registered agent designation itself.
If you draft a power of attorney yourself using a statutory form, your only hard costs are notarization and recording. An attorney who prepares a customized document may charge anywhere from a few hundred dollars to more than a thousand, depending on complexity.
State-set maximum notary fees range from under $1 to $25 per signature. About ten states have no cap and let notaries set their own rates. Expect to pay around $5 for a standard notarization.
If you record a power of attorney for real estate purposes, county recording fees typically run from $10 to $90 depending on the county and number of pages.
Filing Form 2848 or Form 8821 with the IRS is free. Your representative may charge for their time preparing and submitting the form, but the IRS itself does not charge a filing fee.⁴

Execution requirements add their own small costs and steps. Most states require a power of attorney to be notarized, and many also require one or two witnesses to watch you sign. Some states require both. A few impose extra rules, such as prohibiting the notary from also serving as a witness, or requiring witnesses to be disinterested parties who are not named as agents or beneficiaries. Getting this wrong can invalidate the entire document, so check your state’s requirements before the signing appointment. If the power of attorney grants authority over real property, record a copy with the county recorder or register of deeds where the property sits, so title companies and lenders will accept the agent’s signature on deeds, mortgages, or closing documents.

How to End an Agency Relationship

An agency relationship does not last forever, and knowing how to end one properly matters as much as knowing how to create one.

Voluntary Revocation by the Principal

You can revoke a power of attorney at any time as long as you still have mental capacity. The standard process involves signing a written revocation, having it notarized, and delivering it to your agent. Simply telling someone they are no longer your agent may not be enough. Third parties who previously dealt with the agent will not know the authority ended unless you notify them directly. If you recorded the original power of attorney with a county office, record the revocation in the same office so it is effective against anyone who might rely on the public record. Notify every bank, financial institution, and business that has dealt with your agent. Until they receive notice of the revocation, they may keep honoring the agent’s instructions in good faith, and you could be bound by those transactions.

Agent Resignation

An agent can resign by giving notice to the principal. If the principal is incapacitated and cannot receive notice directly, the agent should notify a co-agent, successor agent, guardian, or conservator. Failing that, notice to the principal’s caregiver or another person with a clear interest in the principal’s welfare satisfies the requirement in most states. Walking away without notifying anyone can expose the agent to liability for abandonment.

Automatic Termination

Certain events end an agency relationship by operation of law, with no paperwork required.

Death of the principal ends the agent’s authority immediately, though third parties who do not yet know about the death may still be protected if they deal with the agent in good faith.
Death or incapacity of the agent ends the authority. Naming a successor agent in the original document is smart planning for this reason.
If the document includes an end date, the authority expires on that date without any action from either party.
If the activity the agent was authorized to handle becomes unlawful, the agency terminates automatically.

For IRS authorizations specifically, you can revoke a Form 2848 by submitting a written revocation statement to the IRS, or by filing a new Form 2848 that supersedes the old one. Until the IRS processes the revocation, the prior representative may still appear on the CAF system.⁵

1
Office of the Law Revision Counsel. 26 USC 7521 – Procedures Involving Taxpayer Interviews
2
Internal Revenue Service. Topic No. 312, Disclosure Authorizations
3
Internal Revenue Service. Preparation of Forms 2848 and 8821 and Their Uses
4
Internal Revenue Service. About Form 2848, Power of Attorney and Declaration of Representative
5
Internal Revenue Service. Power of Attorney and Other Authorizations