Audit and Tax Resolution Hero
Tax & AccountingJanuary 20, 2023

Taxpayer audit and tax resolution support – to own or delegate is the question

By: Wolters Kluwer Tax and Accounting

What to do when the tax season gets complicated

Newly minted tax preparers and seasoned tax pros go into each new tax season with aspirations for smooth & problem-free customer interactions. Though this is a hopeful wish for all involved, seldom does that 'perfect season’ ever occur.

Every year it’s not uncommon to have a handful of unique customer issues hijack your work schedule. Even more frustrating is that some of the more time-consuming problems occur through no fault of the taxpayer or tax preparer.

Three serious tax season problems that tax preparers must consider

While there is a cacophony of taxpayer issues that tax pros must contend with each tax season, three problems, centered around tax resolution matters, stand out from the pack. They are:

  • Taxpayer audit notices
  • IRS inquiries requiring a response (involving tax credits)
  • Identity theft incidents

Though these problems don’t occur very often, when they do, it requires time-intensive intervention from the taxpayer’s representative. That’s the tax preparer!

This article weighs a question. Does it make business sense for a predominantly 1040-focused tax preparer shop to take on individual tax resolution duties, or is it best for trusted third-party partners to handle them?

To own or delegate tax resolution work: the cost of wearing two hats

Realizing tax resolution matters will occur each season, tax professionals must determine a remedy that serves the best interests of the taxpayer and the health of the tax business itself.

Consider a high-volume preparer, primarily providing 1040 tax preparation services and supporting clients with tax resolution services as needed. For some tax pros, tax resolution work may not keep pace with the potential revenue from simply preparing tax returns.

Assuming they take on a “typical” resolution case, calling for three hours of the tax preparer’s time. The preparer charges their usual rate of $100 per hour, collecting $300. Meanwhile, the same professional could realistically complete three separate tax return appointments over the same three hours (at a rate of $150 to $200 per return), netting a total of $450 - $600 in fees.

Is a wave of new audit and IRS inquiries coming for your clients?

Experienced tax professionals know that in recent years the IRS has conducted more deliberate reviews of tax returns claiming Child credits or the Earned Income Tax Credit (EITC). These more intensive reviews often generate an automatic tax notice to the taxpayer. Unsurprisingly, these tax notices often find their way to the desk of the representative’s tax preparer, adding to what may already be a heavy workload.

In addition, the recently passed Inflation Reduction Act provides an estimated $80 billion in new IRS funding, with a significant amount of those dollars allocated for tax code enforcement (think audits and inquiries).

Will audits increase as a result of this new law? Who knows.

Given the increased tax code enforcement budget, it’s hard to imagine audit and tax inquiries decreasing. Simply stated, both of the factors just mentioned give tax preparers good reason to plan accordingly for the tax resolution needs their client base may experience in the near future.

The awkwardness of additionally billing tax clients

Tax customers, like any consumer, can make emotional decisions regarding who they conduct business with. Providing an exemplary product and service at a competitive price helps ensure a client stays with you long-term. But sometimes, things happen that are out of the tax professional’s control, such as an audit notice, IRS inquiry, or identity theft incident.

While these instances may be entirely random or coincidental, there’s always the risk that the client may associate the negative experience with their tax pro.

The customer’s negative emotional risk is further compounded because after paying their tax preparation fee, they have to pay an additional, separate fee for tax resolution services. In the end, it can permanently – and negatively – impact the client relationship.

Delegating tax resolution work for greater productivity and client satisfaction

Considering some of the pitfalls that accompany becoming a tax resolution ‘guru’ to tax shop clients, the question is, is the extra work really worth it?

The answer: It depends on how much time is valued.

Today, tax preparers have the good fortune of delegating their client tax resolution issues. Partnering with a trusted third-party service provider who will see each resolution case through to its successful conclusion helps shift the ‘time versus value’ equation very much in favor of the tax preparer!

Protection Plus®, a partnering service provider, offers expert audit assistance and identity theft restoration services to taxpayers on behalf of the tax preparer. Protection Plus is a reliable outsourcing business that aids tax pros in overcoming various client resolution issues for a nominal fee per return or blanket coverage basis. With a trusted partner who can easily handle potentially time-intensive issues such as tax credit qualification disputes, audit mitigation efforts, and clearing a taxpayer’s stolen identity, the tax pro is free to do what they do best – process returns. These are no small matters, and if partners such as Protection Plan are used consistently with clients, tax pros reap a windfall in reclaimed time and money.

With the power and breadth of such a service available to tax preparers today, why would tax shop owners even humor the idea of slogging through tax resolution disputes by themselves?

Learn more about TaxWise® and its partner products like Protection Plus, for your tax preparation needs.

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and expertise that helps tax, accounting and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed and accuracy.

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