Using Audit Protection Plans & POA Monitoring to Boost Bottom Line Profits

Chances are you’ve already heard of this offering, but perhaps never given much thought to it. It goes by various names, such as “Audit Defense Service”, “Audit Protection Plan”, and probably the worst possible name, “Audit Insurance”.

Quick tip: Do NOT call it insurance. State insurance regulators will have a field day with you.

Pricing for this service can range all the map, from as little as $30 through services that Block and TurboTax offer, to $200 and up from bigger audit protection plan companies and bigger CPA firms.

What exactly are we talking about? Audit Protection Plans.

Firms have been offering some variation of audit defense, either packaged and sold directly with tax return preparation or as an add-on, since at least the early 90’s. Typically, an audit protection service offered along with return preparation applies to that return only, and provides a certain amount of work that will be done on the client’s behalf in the event they are chosen for an IRS or state examination of the return. Plans typically impose one or more limitations, such as to the number of hours of representation that are included, or excluding certain credits such as EITC.

By offering audit protection plans to all or most of your tax preparation clients, you are essentially spreading the cost of audit representation for whomever needs it across a large number of people, akin to an insurance program (but again, never call it insurance!). Since the IRS audits less than 0.5% of all tax returns, the overall odds of being selected for examination are about 1 in 200. Additionally, over 70% of examinations are correspondence audits, meaning that the representation work is actually done asynchronously (not in real time with an IRS employee), making it far easier to schedule such work around the rest of your day.

If you have 200 tax prep clients that each paid $99 for an audit protection plan, just as an example, that’s an extra $19,800 coming in to your practice from your existing clients. If only 1 in 200 requires audit representation, on average, then you can easily see that just offering the protection plan becomes ones of the most profitable services within your practice. In addition, you can charge different prices based actual audit risk. For example, since Schedule C filers get audited at a higher rate, your audit protection plan rate for that kind of return can be higher, just as your prep fee is.

For your clients that opt-in to the service, they simply need to notify you when they receive a notice from the IRS that challenges any item on the return, and you handle it like any other audit. In such situations, I definitely recommend doing your normal time and billing, and then presenting the client with an invoice showing the value of the service you provided, even though you’ve zeroed out the invoice with a credit for being an audit defense member. If you’re imposing a limit on service, such as 5 or 10 hours of representation before a discounted hourly rate kicks in, this also allows you to show the complimentary hours covered by the plan.

How Negative Option Selling Works

There are typically two ways to sell this particular service to your existing clients:

  1. By offering it separately to your clients after filing their return, on an opt-in basis.
  2. By including it with all returns by default, and clients have to opt-out of getting it.

Most practitioners are more comfortable with the first, but the second yields much higher revenues. This latter technique is called negative option selling.

Let me give you an example of the success rate of the two different approaches.

Diamond member Dan Henn, CPA uses the first method, offering the service as an upsell after the fact. He tells me that about 30% of his clients take him up on it.

Ernie Neve, CPA, also a Diamond member, uses the second method. He puts the audit protection plan fee on his invoice, and goes over it with the client when the invoice is presented. If they want to opt-out, they have to sign a form ackowledging that they are opting out and explaining the fees they will pay if they are selected for audit. He has 70% of his clients just take it, drastically increasing his per-client revenue.

Audit Protection’s Distant Third Cousin: POA Monitoring Service

In the tax resolution world, best practices dictate that we revoke our 2848 after the conclusion of an engagement. If we don’t, both the IRS and the client may erroneously believe that we are still actively representing the client, when in fact we are not being paid to provide any additional services. If something negative happens, the client can (and has) sued the practitioner that didn’t revoke their POA, and your E&O provider probably won’t pay out on the claim.

So, if you’re going to be “on the hook” with an active Power of Attorney, be sure that you’re getting paid for it.

That’s why I created the POA Monitoring service in my own practice. This is a service that, depending upon the volume of tax resolution work you’re doing, could quite easily add $20,000 to $100,000 per year to your practice, and it’s extremely profitable.

In some ways, it works similar to audit protection. Basically, after a tax resolution engagement, you will keep your POA active. Occasionally pull transcripts and review them, sending the client a letter explaining their status and giving them a gold star or a gentle scolding, as appropriate. Also, since you’ll still be receiving copies of notices, you can proactively reach out to the client whenever a notice comes in to explain to them what it is and what they do or don’t need to do.

This is a service that you really only offer to the tax resolution clients that you WANT to continue working with. At any given time, I would have 5 to 10 past clients on Monitoring service, adding $10,000 to $20,000 per year in almost pure profit to my business. Pull transcripts on a quarterly basis and sending a letter took less than 30 minutes per client, and occasional notice reviews requiring a quick email take very little time. Whether you’re operating a boutique tax resolution practice like I did, or you are running a high volume practice, it’s easy money that you’re likely just passing over right now.

As you can see, offering Audit Protection Plans to your tax prep clients, and POA Monitoring to your tax resolution clients, can add up to some serious money in your practice. In order to help you launch these two related add-on services, I’ve created a resource kit that includes everything you need to start offering both services right away.

What’s Included in the Audit Protection & POA Monitoring Toolkit

Our Audit Protection & POA Monitoring Toolkit was created a year ago for Diamond members, but it’s such a useful thing for both you and your clients, that I felt it was necessary to separate it from the Diamond membership and offer it as a stand alone toolkit.

  • Audit Protection Service acceptance/opt-out letter for participating clients
  • Audit Protection Service engagement letter
  • POA Monitoring Service acceptance/opt-out letter for participating clients
  • POA Monitoring Service engagement letter
  • Example fee structures
  • Simple written instruction guide on how to launch each service
  • Marketing one-sheets describing each program’s benefits for clients. (This will be posted to the toolkit in about a week.)

I am fully aware of the fact that “the other tax resolution guy” offers a similar-ish toolkit on his website for $1997, and practitioners have asked me what the difference is. I haven’t seen his materials for this, so I can’t offer a comparison, but I can say this much:

  1. The most important component, the thing you’re really after and paying for, is the Engagement Letter. You could assemble your own with several hours of Internet research — Audit Protection Plans have been around for decades so there are plenty of examples online you could swipe from. You don’t need to pay me or anybody else for it, and it’s certainly not worth dropping $2k on. Mine is a much lower investment, and what you’re really paying for is the time savings from assembling it yourself.
  2. There are very few new ideas in business and marketing. There just aren’t. The POA Monitoring Service for tax resolution clients is one of maybe half a dozen original ideas I’ve every had in this industry. POA Monitoring is literally the most profitable service I’ve ever offered, and is one of the few recurring revenue opportunities available for a resolution-only firm. You’re not going to get this component anywhere else.

As an added bonus, I’m going to also provide you with a training video on how to move your entire practice to a membership-based fee model, with different pre-set pricing tiers for various levels of service. Offering Audit Protection and/or POA Monitoring is a perfect adjunct to a tax practice model based on a monthly or annual membership fee for services.

To add this simple yet highly profitable service line to your tax practice, order the Audit Protection Plan & POA Monitoring Service Toolkit today for only $795. Cyber Monday / Black Friday Special Offer: Use coupon code CYBER to get 50% off. Click here to order.

Get the Audit Protection Plan & POA Monitoring Service Toolkit for 50% off through Friday, November 23, 2018.