Question 1

Success Story # 1 – Stock Option Windfall

Accepted Answer

TAX CHALLENGE: Stock Option Windfall

Andrew owned 5,000 vested employee stock options when his company, Risk R Us, merged with another company. A highly-regarded Property & Casualty Insurance Broker referred Andrew to Kelley Sammons Armstrong Toole & Ellison for help in calculating and planning for the tremendous income tax bill associated with the windfall profit created by the merger.   OUR SOLUTION:  Teamwork, Persistence, and Expert Research   As we worked through the details and became more familiar with the nuts and bolts of the merger, we asked the CFO of Risk R Us some fundamental questions about how he envisioned the stock options being taxed. Using the information we gleaned from Risk R Us representatives, we performed extensive research to find the most advantageous solution.   RESULT:   Joint efforts between Kelley Sammons Armstrong Toole & Ellison, the CFO, and legal counsel of Risk R Us paid off! Our ideas saved Andrew $28,000 of Federal and State income tax by looking at option taxation from a new angle. Our mutal success also benefitted many of Andrew's collegues at Risk R Us – it was a win-win for all.

Question 2

Success Story # 2 – Customized Tax Planning

Accepted Answer

TAX CHALLENGE: Finding Tax Loopholes Through Forward Thinking

Ulysses’ company designs, builds, and repairs gizmos. As gizmos become more sophisticated, Ulysses builds fewer but the profit per gizmo increases. Having been in the gizmo business for many years, he made more profit in 2003 servicing previously-built units than building and selling new ones.

In the late 1990’s, we designated the service portion of Ulysses’ business as eligible for a significant tax loophole if average annual revenues fell below $10 million. OUR SOLUTION: Take Advantage of Tax Laws When the Timing is Right

We persistently watched Ulysses’ business results for five years, waiting for revenue to reach the dollar threshold that would qualify him to take advantage of the tax regulations. Fewer gizmos were built in 2003, resulting in revenues that met the qualifying threshold for the first time that year. We prepared Ulysses’ 2003 tax returns incorporating the long-awaited loophole.

RESULT:

Ulysses not only paid $0 in 2003 income taxes, but also received a refund of $350,000 for prior year tax payments.

Question 3

Success Story # 3 – An IRS Audit and a Panicked Client

Accepted Answer

TAX CHALLENGE: An Unfavorable IRS Audit

We received a desperate voice mail from Theodore, a client whose complex tax return had been audited by the IRS, resulting in an unexpected $66,000 tax liability due and payable in short order. This tax return included non-standard complications related to farming income, various rental properties, and consulting income, requiring diligent review and expertise in these areas.   OUR SOLUTION:  Leverage Our Expert Knowledge to Dispute IRS Findings Time was of the essence in assisting Theodore. We responded immediately, going to bat for him with the IRS. We proved that bank deposits the IRS considered to be taxable income were actually loan proceeds, expense reimbursements, or payments taxed in the preceding year.

RESULT:

Our detailed analysis and successful findings with the IRS resulted in lowering Theodore’s tax liability from $66,000 to $8,000. Theodore was a very relieved and grateful client.

Question 4

Success Story # 4 – Why Didn’t My Other Firm Catch This?

Accepted Answer

TAX CHALLENGE: Understated Prior Year Depreciation Expense – Overpaid Taxes
 Two different multi-million dollar corporations engaged KBT&E for services after years of working with larger firms. Our customary review of prior year corporate-maintained depreciation records showed that both firms had likely under-reported their depreciation expense, resulting in overpayment of taxes for prior years.   OUR SOLUTION:  Minimize Tax Liability by Thoroughly Understanding Each Client’s Business Operations and Assets KST&E worked with our clients to gain a thorough understanding of their Business operations and assets.  We applied the law to the business situation, and found that one client had under-reported depreciation expense by $135,000, and the other had under-reported by $240,000.    RESULT: We explained to the clients that the depreciation deduction could be taken in the current year or in a future year. One client chose to take the depreciation in the current year, and the other chose to take the deduction in a future year when the owners expect to be in a much higher tax bracket. One of KST&E’s quite-satisfied new clients saved $50,000 in the current year, and the other client has a deduction worth an $80,000 tax savings “in the bank”.

Question 5

Success Story # 5 – Remember Your Tax Credits

Accepted Answer

TAX CHALLENGE: Unclaimed Georgia State Tax Credits   Our detailed review of the records of a Subchapter S corporation indicated some of the corporate shareholders were missing out on Georgia tax credits allowable for taxes paid to other states by the S-Corp on behalf of those shareholders. In addition, the shareholders failed to take a Federal tax deduction allowable on Schedule A for these taxes.    OUR SOLUTION:  Apply Our Subject Matter Expertise to Increase Tax Refunds to Clients KST&E determined the amount of taxable income in states other than Georgia and the amount of tax paid on that income. We used that information to determine the credit amount for each shareholder and amended prior year Georgia returns. We also amended the Federal returns.   RESULT: With KST&E’s assistance, three shareholders amended two prior year returns each for tax refunds ranging from $4,600 to $14,800.

Question 6

Success Story # 6 – Failure to File Prior Year Tax Returns? There’s Hope!

Accepted Answer

TAX CHALLENGE: IRS Penalties for Failure to File Prior Year Tax Returns   Jeannine failed to file tax returns for multiple years. IRS Failure to File notices indicated her tax liability, plus penalties and interest totaled over $200,000. Jeannine, having just completed several rounds serious medical treatments, was now unemployed, experiencing excessive medical bills, and could not imagine how she was going to pay the proposed IRS assessment. Noticeably distraught when she came to KST&E, Jeannine sought our services to help reduce the amount owed.  OUR SOLUTION: Go the Extra Mile for Our Clients with the IRS, While Minimizing Cost of KBT&E Services

To minimize our cost of services to Jeannine, KST&E assigned a knowledgeable staff accountant to work closely with her in gathering all the information necessary to comply with the IRS and attempt to reduce the tax liability. As we gathered information to file the past due tax returns, we worked with Jeannine to compile a list of all medical procedures and treatments rendered during the tax periods addressed by the Failure to File notices. We sent this information to the IRS and requested abatement of penalties assessed due to medical incapacity. RESULT: The persistence and efforts of the KST&E accountant resulted in an immediate reduction in the initially-notified tax due of approximately $100,000. Additionally, our request for abatement of penalties due to medical incapacity was accepted by the IRS, resulting in a final total amount owed of $50,000 rather than the original total of $200,000.  Jeannine was still nervous about where the money was going to come from, but she was grateful for the significant reduction we helped achieve, as well as a lower-than-expected cost for our services.

Question 7

Success Story # 7 – Gain from Sale of Business…”This tax bill seems WAY too high!”

Accepted Answer

TAX CHALLENGE: Mis-classification of Profits from Sale on Prior Year Tax Return   Kevin and his son sold a small business franchise in another state, engaging a local CPA firm there to prepare the tax return for the year of sale. The tax liability was as high as the entire net profits the client made on the business in previous years. This just didn’t seem right to Kevin, so he mentioned his frustration about the tax bill to KST&E during a casual client lunch.  OUR SOLUTION: Take a Personal Interest in Helping the Client

KST&E reviewed the personal tax return for Kevin and his son, detecting no anomalies. Unwilling to give up on the challenge, we requested and reviewed details of the business sale and found that over $1 million of capital gain had been mistakenly classified as ordinary income on the tax return (with a tax rate of 20 percentage points more than the amount that should have been owed).  RESULT: Our tenacity paid off. We applied for tax refund of over $250,000 for the year of the sale, resulting in a great sigh of relief to Kevin and his son.  Kevin’s feedback? “KST&E rolled their sleeves up and dug out a huge tax refund for my family, all based on a simple question I raised during lunch about last year’s taxes.”

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