What Is Tax Audit Protection and How Does It Work?

Tax audit protection is a service designed to assist taxpayers who are being examined by the IRS or a state tax agency. It provides professional representation to manage the audit process on your behalf, alleviating the stress of responding to tax authority inquiries. The service acts as a buffer between you and the auditors, ensuring a knowledgeable professional handles the examination. An audit does not inherently mean there is an error on your return, as some are chosen based on statistical formulas. Having audit protection in place means you will not have to face the complexities of a tax examination alone.

Scope of Coverage for Audit Protection Plans

The core of any audit protection plan is the professional representation it provides. If you receive a notice, a tax professional—often a Certified Public Accountant (CPA) or an Enrolled Agent (EA)—will take over communications with the tax agency. They manage all correspondence, respond to information requests, and represent you in any meetings with the auditor. The plan covers the cost of this professional’s time, which can otherwise amount to thousands of dollars depending on the audit’s complexity.

This representation extends to various types of audits, from simple correspondence audits handled by mail to more comprehensive office or field audits. For example, if you receive an IRS CP2000 notice, which proposes changes to your tax return due to a discrepancy between reported income and third-party information, the representative will analyze the notice and formulate a response. The service is designed to ensure that any final determination is accurate.

Audit protection plans do not cover the payment of any additional taxes, penalties, or interest that may be assessed as a result of the audit. You are still responsible for any amount you are found to owe. The service is there to ensure the amount is correct, not to pay it for you.

Coverage also excludes matters involving criminal investigation or allegations of tax fraud. If an audit escalates to the IRS Criminal Investigation (CI) division, the provider will cease their services. These plans also do not provide for legal representation in United States Tax Court or other federal courts. Other common exclusions include audits for tax types other than income tax and returns for businesses with very high gross receipts.

Providers of Tax Audit Protection

One common provider is tax preparation software companies. Major brands offer audit protection as an add-on service when you file your taxes using their software. This is typically purchased for a flat fee and provides full representation from a licensed tax professional for the specific tax return filed.

Another source is accounting firms and individual tax professionals. CPAs, EAs, and tax attorneys may offer audit protection directly to their clients. This can be structured as a standalone annual plan or bundled into a larger package of tax preparation and advisory services, ensuring service from someone already familiar with your financial situation.

Third-party companies that specialize exclusively in providing tax audit protection can be purchased independently, regardless of how you prepared or filed your tax return. This option is useful for taxpayers who used a smaller preparer who doesn’t offer in-house protection or for those who prepared their own return without software. These specialized companies focus solely on audit representation.

Activating Your Audit Protection Plan

When you receive a notice from the IRS or a state tax agency, you must activate your audit protection plan. Contact your provider immediately, as some plans have a time limit for notification, often within 60 days of the notice date. You should not contact the tax agency yourself; the representative is meant to handle all communications from the outset.

You will need to provide a complete copy of the official notice you received and a copy of the tax return that is under examination. You must also sign a Power of Attorney, such as IRS Form 2848, “Power of Attorney and Declaration of Representative.” This form legally authorizes your designated tax professional to represent you before the IRS. It allows them to speak to the auditor, receive confidential tax information, and sign agreements on your behalf. Without a signed Form 2848, the IRS will not communicate with your representative.

Once the provider has received your documents, they will formally take over the case. They will notify the auditing agency that they are now your official representative, and from that point forward, all correspondence will be directed to them. Your role shifts to being a resource for your representative, providing them with any information they request to defend your return.