Wednesday, October 20, 2010

Free Tax Audit Protection

Did you know that if you have a professional tax preparer prepare your tax return that you get automatic audit protection? If you get an IRS audit the preparer must defend you at no cost all the way to the Supreme Court. Since it costs you nothing you may as well go the distance. If you do owe additional tax from an audit the preparer must pay the tax. In fact, you should withhold information from your accountant and let him pay the tax if you get caught. You should also encourage your tax pro to take an aggressive stance since you have no risk. All this for a couple hundred dollars in prep fees.

The above paragraph is not true, but many people think it is. I pick up several clients each year from other accounting firms because the client expected free audit protection. The real kicker is when they expect the accountant to pay their taxes for them. So it goes.

I am lucky. My clients get audited at a lower rate than average. But audits still pop up from time to time. And every couple of years I get a client that thinks I should pay their audit costs and taxes. Today is the day.

When you win 99% of the audit, have zero penalties and only $40 in interest you should be happy. Unfortunately, this is not the case. It is even worse. The client wants me to pay him for his time. It does not work that way, folks. Not in this fantasy world.

This post is about how I handle the client that thinks a tax preparation fee includes audit protection and payment of their taxes. In a simple phrase: I fire them. Sound mean? Not really. I do not want to serve a client that expects me to pay their taxes. No one is really so dumb as to think anyone will pay their tax bill for them.

Let me make this clear. Tax preparation fess pay for tax preparation services. Audits cost extra. Your taxes are your responsibility under all circumstances.

I am writing this early Monday morning but will post this Wednesday. Thursday I will fire a client for wasting my time, expecting me to pay taxes he never owed, including costs of the audit. Too bad, really. I liked the guy. But if trust is lost why waste time. He will be served better elsewhere.

And just so you know, you can purchase audit insurance where some or all of these costs are covered.

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