Your Best Move for Next Tax Season

AuditFew topics have spurred more questions from TaxCoach members than audit protection programs. We’ve discussed them at our regional roundtables, on member call-ins, and at last fall’s All-Stars Masterminding Retreat here in cosmopolitan, sophisticated Cincinnati. (Q: Why is Ohio called “the Heartland? A: Because there’s no brain here!)

Now, by popular request, we’ve introduced a template audit protection program you can use to generate literally thousands of dollars in new revenue from your existing clients. You’ll find it in the Marketing Your Services section of TaxCoach under “Marketing Templates.” But rather than just post it and say “here it is,” I want to spend some time discussing how to structure these programs for best results.

Most of us spend countless hours dealing with notices from the IRS and other taxing authorities, requests for documents and “comfort” letters for third parties (such as mortgage lenders), and similar “administrivia” on behalf of our clients. Very few of us get paid for that work. About the only time we actually bill a tax-prep client after their return goes out the door is if they get audited — and we all know how low the real odds of that happening are.

Audit protection programs let you spread the cost of that work across all those who pay for protection, by charging a modest fee when you deliver a return. They also let you put clients on notice that if they don’t sign up for your program, you will charge them, at regular rates, for post-filing work.

1. What do I call it?

You can give your plan whatever jazzy trade name you like, so long as it’s not already taken (copyrighted or trademarked). I like to include the word “audit” in the name simply because it’s so scary to most clients. (I’m even a CPA and it scares the crap out of me! — Keith.) Remember, many of our regular tax-prep clients would be perfectly capable of completing their own returns — they just feel better seeing someone else’s name on that “Paid Preparer” line.

My “default” term is Audit Protection Plan. But we’ve seen names like Audit Assurance, Audit Shield (which I believe is trademarked), Tax Shield, and Client Care.

One cautionary note — be careful before you use the term “insurance” in your plan name. Whatever state you’re in has an Insurance Commissioner or similar bureaucrat who probably won’t smile on your efforts to muscle into his turf!

2. Opt-in vs. Opt-out?

An opt-in plan is one where you offer the service to your clients and invite them to participate. An opt-out plan is one that you automatically include in your client’s bill, with an option for those who don’t want the program to bypass the service and the charge.

What’s the difference? To be blunt about it, success versus failure! We typically see opt-in plans drawing around 20% of clients or less — but opt-out plans drawing as much as 90%of clients. It’s clear from our experience that if you want to draw significant numbers, you should choose the opt-out format.

3. When should I introduce it?

It’s easiest to introduce a new plan — especially an opt-out plan — before the season starts. You can include a notice or brochure with your pre-season letter or tax organizer and make additional copies of that information available for clients visiting your office. This avoids any unpleasant surprises when it comes time to collect fees.

But don’t feel like it’s too late to create a program for this year’s busy season just because you haven’t already given notice. Here’s what member Bev Stitely reported about her new program:

“We decided to offer an Audit protection program this year. We call it Client Care Package. We did not send out a notice in advance. When the client first comes into the office, either to drop off their information or for their appointment, they are given a tri-fold brochure explaining the program. We created the brochure with Publisher and print it in house. (new color laser printer). 

When we are going over the return and giving them the bill we handle it very casually in the conversation. “You have the brochure about our new client care package, I’ve included that in with your return, is that alright?” Almost everyone so far (2 weeks) has said yes. If they have additional questions regarding the coverage, we answer their questions. The biggest benefit for clients is the handling of the IRS nasty grams.

If they opt out, they sign a form that we tailored from the one on the website.

We added this at the last minute, so using the brochure as the client came in the door made it easier for us to implement immediately. We did not need to prep a mailing for 3500 clients. That would have taken some time, especially if we were using an outside printer. Cost of brochure to us for toner and a little better weight paper will be $300. Plus, I know half of my clients don’t read my newsletter. (e-mailed to those possible, snail mail the rest).”

We found on yesterday’s Member Call-in that approximately 60% of you who offer audit protection use the opt-in format. Switching to an opt-out is quite simply the fastest and easiest way to turbocharge your revenue from your existing clients — and there’s still time to do it for this year.

4. How do I charge for it?

There are two ways to charge for audit protection. You can charge a flat fee or multiple flat fees according to service level (basic, advanced, etc.) or type of return prepared (1040, 1065, 1120S, etc.). Or you can charge a percentage of the underlying base tax-prep fee.

Flat fees are easy to communicate to clients. Want to cover your 1040? $79. Want to cover your 1120S? $249. That’s easy, right?

But… just as we know that some returns are more complicated to prepare (and thus justify higher fees), we know some returns are more likely to be audited (thus justifying a higher “premium” for protection). How can we “underwrite” returns to make sure that those clients most likely to get audited shoulder more of the fees?

The answer is to charge a sliding fee based on the underlying base tax-prep fee. That way, those clients with more complicated returns pay more for their protection and compensate you for their greater risk of needing to take advantage of your plan’s actual services.

We typically see TaxCoach members charging from 10-30%. On yesterday’s call, we saw several who previously charged 10% of tax-prep fees for audit protection reporting that they plan to charge more this year.

5. How do I protect myself from “the audit from hell”?

Remember when you were a kid and you did something vaguely dangerous but really fun? Mom said, “It’s all fun and games until somebody loses an eye!” Mom’s warning must have worked — how many of us know kids who actually lost an eye growing up?

Audit protection programs are kind of like running with scissors. They’re all fun and games too — until someone actually gets audited! What then? How do you protect yourself from the “audit from hell” that drags on for month?

The answer here is to limit the number of hours you’re willing to spend without your regular compensation, and write that into the plan language. Once you reach that point, just start billing at your regular rates. Your clients will still see value in signing up for the program. And you and I both know the odds of someone needing to pay extra for additional service is minimal.

We’ve seen TaxCoach members use audit protection programs to net thousands in new revenue, from existing clients, for work they would have done anyway without getting paid for. Many members have told us the plans give them more peace of mind, knowing they can spend the time necessary to handle follow-up work without having to worry about billing for it. And they give clients more of the valuable peace of mind that leads them to hire us in the first place. They’re truly a win-win. So… what are you waiting for?