How to Limit a Corporation's Liability With Audit Insurance

Audit insurance can help protect your corporation against the fees incurred when you are subject to a government agency inquiry, audit or investigation. Because the burden of proof is on your corporation, any data or figures you are unable to confirm can result in additional taxes or even fines. Audit insurance can help you cover these costs.

Difficulty: Moderate

Instructions

Things You'll Need:

• Phone
• Computer with Internet access

1. Use the National Association of Professional Insurance Agents Web site to begin your search for an insurance provider (see Resources below). If you currently have D&O or business and liability insurance, talk to your provider about adding an audit insurance rider.

2. Verify the ratings of all potential agents and brokers. You can view ratings of agents compiled by an independent agency such as A.M. Best, Weiss Ratings or Moody's (see Resources below).

3. Ask your corporate attorney to guide you through the process of choosing the best audit insurance. You can also choose a corporate insurance consultant to help you design a comprehensive insurance strategy that will limit your corporation's liability with cost-effective policies.

4. Choose an insurance provider based on the outcome of your research. Then fill out the application for audit insurance, which will likely require you to submit at least 1 year of federal tax returns.

Tips & Warnings

• While audit insurance is important, it's equally important to have a strong team of financial advisers within your corporation. Avoid an audit in the first place by hiring top-tier accountants and incorporating financial best practices that will limit your corporation's liability.
• If you are notified of an upcoming audit and do not have insurance at the time of notification, it will be difficult and costly, if not impossible, to obtain audit insurance after the fact.