What are the Different Types of Audit Protection?

Audit protection is a catch-all phrase for services assisting people who are being audited. This is most commonly associated with audits of tax filings, such as those carried out in the United States by the Internal Revenue Service. On a corporate level, an audit can involve the assessment of accounts, particularly in a publicly traded company, but "protection" against an audit is usually an inherent part of the work of the company's accounts department.

The most common — and most feared — type of audit for individuals is that carried out by the IRS. The audit involves the taxpayer being asked to supply documents as evidence that particular claims made on the tax filing are correct. About two-thirds of audits are carried out via mail, with the rest involving an in-person interview.

Audit protection comes in two main forms. The first is services designed to reduce the chances of being audited. The second is services to assist people who are being audited.

There are a wide variety of services that claim to reduce the likelihood of an audit. The most expensive involve a tax professional carefully checking through the filing to look for issues that may trigger an audit. In effect, the professional is carrying out a dress rehearsal of a real audit, albeit without as much stress or fear from the taxpayer. The cheapest services simply claim to offer details of the "secret" list that the IRS uses to look for suspicious audits. These services should be viewed with caution, as even if the information available is from a legitimate IRS source, it may still be outdated.

Audit protection services for people already under audit are usually administrative. They mainly involve a tax professional gathering together the taxpayer's documentation, finding what is needed to support the disputed section of the filing, and highlighting any missing documentation. Such professionals can also provide advice on the taxpayer's rights in the audit process.

Another service on offer is audit protection insurance. This is simply an insurance product that involves paying an annual premium that covers any professional services costs that arise if the policy holder is audited. In some cases, the insurance may be offered by the same company that offers the audit protection services, meaning that the customer doesn't have to pay for the services and claim the money back. Instead, the company simply provides the services without charge. Whether such insurance is worthwhile can be hard to judge. As well as looking at the premiums and potential costs, the customer must consider the likelihood of being audited, which can be very hard to predict. In 2008, there was roughly a one percent chance of being audited for Americans earning less than $200,000 a year.