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Case Studies

ON-BOARDING OF NEW CLIENTS

As part of our client intake process, Schulte & Company performs an initial review of every new client. One of the goals from this initial review is to ensure that accounting systems and procedures are in place to ensure accurate and timely financial reports and tax returns. The initial assessment includes:

  • Review of Current Operations,
  • Understand and Evaluate the Cash Flows of the Business,
  • Accounting Clean-up, and
  • Recommendations for improvement.

 

As part of our on-boarding process, S&Co enters every new client’s prior year tax information into our systems. This facilitates a review of the tax returns that were prepared by the predecessor and enables S&Co to increase its familiarity with the new client. This critical step often results in the discovery of errors and omissions.

 

The following is an actual fact pattern from a client that recently joined us.

A closely held business with a history of business acquisitions became concerned about the price they were paying and the service they were getting from another CPA firm. While Schulte & Company was able to provide a substantial savings in the accounting fees they were paying, the real benefits for the client began to be realized after they joined us.

Our on-boarding process allowed S&Co to identify substantial errors in how the business acquisitions were being treated. It became obvious that the prior CPA (a) did not read and understand the purchase agreements or (b) simply did not know what they were doing. S&Co amended several years of corporate tax returns and restated the company’s balance sheet. The resulting federal and state tax refunds were in excess of $100,000 and the company continues to enjoy incremental tax deductions now that the costs of the acquisitions have been properly recorded.

In summary, the client reduced their accounting fees and saved six figures in the process.

 

IRS REPRESENTATION

Unfortunately, taxpayers sometimes find themselves at odds with the IRS. While we stand behind every return we file, most of our advocacy work is for clients that had their tax returns prepared elsewhere. These clients are referred to Schulte & Company because of our experience and reputation for successfully and fairly dealing with the IRS and state agencies. (See Tax Services for more background on our tax advocacy expertise.)

The first step in resolving tax controversies is to completely understand all the facts and circumstances. Sometimes taxpayers create their own IRS problems. Sometimes a client’s financial or personal situation prevents them from being a good taxpayer. Once all the facts are gathered, S&Co develops a plan to resolve the tax issue, prepares a power of attorney and contacts the IRS on the taxpayer's behalf.

The following facts are from a case we recently resolved for a client.

The taxpayer was a well-to-do widow. Her husband managed all the financial affairs of the family until his untimely death; after which she relied exclusively on her investment advisor for both managing her financial affairs, as well as filing her tax returns. A few years later, the widow’s son was visiting and discovered that she had several notices from the IRS demanding payment of $515,595 and other notices from the state tax department demanding $18,994 for back taxes, penalties and interest. The son asked his banker what to do and the banker referred them to Schulte & Company.

Schulte & Company contacted the IRS and the state tax department and obtained transcripts of all information in the government’s possession. We discovered that the investment advisor had cashed in some of the taxpayers annuities, took the proceeds and, in an effort to conceal his embezzlement, never filed the tax returns that he said he prepared.

Schulte & Company prepared and filed the missing income tax returns. By taking advantage of available losses, matching cost basis against proceeds and utilizing available carryovers, the result was that the taxpayer did not have to pay any of the $534,589 that the government was trying to collect from them. The end result: the client was happy. The banker who referred the client was happy. The investment advisor was not happy; he subsequently became a defendant in criminal and civil litigation.

 

TAX DEPOSITS

A closely held business with several employees had been obtaining payroll services from another CPA firm. The client felt that they were not being properly serviced and asked Schulte & Company to bid their work. Schulte & Company engaged the client for a slightly smaller fee than the client had been paying.

During the setup process, Schulte & Company enters every new clients’ year to date payroll information into our systems and review prior year forms. We mirror the processing of at least one prior payrun. This facilitates a review of the payruns and tax deposits prepared by our predecessor and enables Schulte & Company to increase its familiarity with the new client. This critical step often results in the discovery of errors and omissions.

Here we learned that the new client was not only behind in making tax deposits for prior periods, but also was using the wrong payment method (paper checks, as opposed to electronic transmissions), resulting in several thousand dollars in penalties per year. First, Schulte & Company structured the new client’s current tax deposits, so that they were being made timely via the proper payment method, stopping the vicious cycle of recurring new penalties. Then, Schulte & Company negotiated with the IRS to establish an installment plan for the client to payoff back taxes due, bringing the client into compliance.

The client response was simple – “This is a huge weight off my mind. We should have switched to Schulte & Company sooner!”

 

BENEFITS DEPOSITS

A professional firm with a dozen employees had been preparing its own payroll and filing its own payroll tax deposits and forms, as wells as withholding and depositing its retirement plan deposits. Unfortunately, a period came when cash was tight and the owner chose to delay depositing retirement plan monies withheld from the employees’ paychecks. After a time, the professionals employed by the company, notified the Department of Labor and left the company. Staffing fell to half of former numbers, resulting in a serious set back to the growth potential of the company.

In addition to loss of employees, the improper calculation and deposit of retirement funds, as well as payroll taxes, can subject the owner and other financial officers of a company to significant personal liability. Having an independent, objective payroll processor calculate and remit taxes and benefits ensures that the calculations will be done properly and ensures that the payments will be made timely, as a requirement, instead of an “option.”

 

WAGE AND HOUR

Failing to properly compute and remit payroll taxes is one of the most common causes of small businesses failure.

A local hotel had hourly and salaried employees. Under the federal Fair Labor Standards Act, it is important to properly classify employees as non-exempt or exempt, based on the duties they perform, and once classified, compensate them with minimum wage and overtime, as applicable. Following Rothrock’s guidance, the client maintained job descriptions, time records, propertly classified it’s employees and paid employees accordingly. When, one day the Department of Labor issued an audit notice with a $60,000 assessment, the client had all the records in order to dismiss the claim.

The client’s response – “I am sure glad I’m with Rothrock; the procedures and processes they recommended that I have in place saved my business.”