How Much Does a CPA Charge for a Tax Audit?
Understanding the Cost of a CPA for Tax Audits
Why don’t you ask how much a doctor or a hair stylist charges? Depending on the service required and the complexity, any professional’s rate is subject to variation. An NYC law firm specializing in tax law will charge a bunch more than your local CPA.
Hourly Rates for CPAs
CPAs charge by the hour, and this can vary significantly by region. In the southeastern states, for example, rates can run anywhere from $150 to $300 per hour, depending on the complexity of the audit and the experience of the CPA. This high hourly rate reflects the expertise and the extensive experience required to effectively handle these complex matters.
Variables Influencing the Cost
The cost of a tax audit is heavily dependent on the complexity of the tax return and the related IRS audit issues. Simple audits for small businesses or individuals with straightforward tax situations may cost as little as $5,000 for a basic audit. However, in cases with extensive real estate holdings, complicated financial transactions, or significant business operations, the cost can quickly escalate beyond $50,000 or even $100,000.
Complex Audit Examples and Fees
Consider a client with extensive real estate holdings who had their returns prepared by an in-house accountant. Here’s an example to illustrate the significant fees that can be incurred:
Extensive Real Estate Holdings Case Study
Representation and Audit: Representing an individual with extensive real estate holdings, the audit fee charged was over $50,000. The CPA was responsible for reviewing and challenging the tax returns, ensuring all information was accurate and transparent. The complexity of the case, involving real estate investments, capital gains, and rental income, necessitated detailed and thorough audit procedures.
Cost Segregation Study: Following the audit, we conducted a cost segregation study. This study identifies specific property costs that can be depreciated on a faster schedule, thereby accelerating the tax benefits. The fee for this study was $120,000. The detailed analysis of the property costs allowed for more precise tax calculations, leading to potential tax refunds for prior years.
Amending Audited Returns: After the cost segregation study, we amended the audited returns from prior years to reflect the correct tax positions. This amendment process was critical for obtaining tax refunds and ensuring compliance with tax laws. The fees for amending these returns were included in the overall cost of the audit and study.
Conclusion: The cost of a CPA for a tax audit is not fixed and is subject to a wide range of factors, including the complexity of the return, the professional fees charged, and the services provided. While simpler audits may cost less, cases involving significant business operations and real estate holdings can incur substantial fees, often exceeding $50,000 or $100,000.
Final Thoughts: It's crucial for individuals and businesses to understand the potential costs involved in a tax audit and to engage a CPA with the appropriate experience and expertise to manage the process effectively. Proper planning and consultation with a qualified CPA can help mitigate unnecessary expenses and ensure accurate tax documentation.