Ready to Offer IRS Audit Defense for Clients?
The word “audit” around tax time is scary for businesses, the self-employed, W-2 filers, and even accounting firms. That said, the consensus is that audits trigger about .4-.5 percent of the time (based on nearly 200 million tax returns).
While 1/200 isn’t insignificant, the risk is a bit overstated.
Regardless of how likely your clients are to be audited, no one wants to see that notice in their mailbox. And believe it or not, the relatively low percentage of audits is a strong reason for audit defense.
A bit counterintuitive? Maybe. But there are several solid reasons to consider offering to defend your work in tax preparation (that you do on behalf of your clients).
4 Reasons Your Firm Should Offer Audit Defense
- Deductions and Credits Can Trigger Audits: Large credits and deductions may raise the collective eyebrow of the IRS. If you currently have clients taking advantage of the R&D Tax Credit or other ways to reduce the tax burden, it could trigger an audit.
- This Service Differentiates Your Firm: As mentioned, most firms don’t offer defense (at least not publicly). Standing out by saying you’ll be in a client’s corner (should an audit be triggered) is a great tool to overcome objections.
- Mistakes and Shortcuts: No one enjoys thinking about making mistakes, but that doesn’t change the fact that mishaps occur. If the problem is big enough, the IRS may take notice.
- Firms File a Lot of Returns: You may only have a 1 in 200 risk of an audit, but how many returns have you filed over the life of your firm? Over the life of your firm, it is likely to have an audit (if you haven’t already).
The Complexity of Offering Help with IRS Audits
Yes, audit defense is a beneficial service. However, it’s not without its drawbacks. Many firms don’t offer audit defense for a couple of reasons.
First, there are capacity issues. A significant overhead cost goes with preparing for something with a .5% chance of happening.
Secondly, if you have to defend a return, resources and members of your team are then dedicated to:
- Responding to audit notices
- Generating the reports
- Gathering witnesses
- Not to mention keeping up with the latest in terms of case law.
As a firm owner or partner, how can you receive the benefits of offering audit defense services to clients while avoiding lost capacity?
Work with a Qualified Audit Partner
A trusted service providing accounting firms with specialty help lets you offer things like audit defense to your clients — without directly handling the deliverables.
By utilizing a company with specific services, you set your firm apart from others by having those things high-value customers desire. If you work with a company like Tri-Merit, there are other similar offerings, too.
For instance, the R&D tax credit (one that can trigger an audit). Many businesses have the opportunity to claim credit for their research and development costs. However, it’s a bit cumbersome to follow through with.
Other similar deductions and credits that have potential audit implications include:
- 45L and Section 179D
- Employee Retention Credit (ERC) and Work Opportunity Tax Credit (WOTC)
- Cost Segregation
Gain the ability to offer clients the potential of a reduced tax burden (and audit defense, should it occur) without utilizing your own staff’s capacity.
Tri-merit has a team of people that are highly educated and focused on tax code and audit procedures.
To learn more about our audit defense capabilities, visit our dedicated service page. If you’re interested, schedule a 30-minute discovery session at no cost to you.
