Case Studies

 

I.  TAX SUCCESS STORIES

1.  Offer-in-Compromise saved the client $73,000 in federal taxes.

A client retained Davidoff & Associates to find ways to alleviate the pain from prior years’ unpaid federal taxes.  IRS was threatening with liens on all property including client’s bank accounts.  After a thorough review of a client’s situation and realistic options, we came to the conclusion that applying for an OIC (Offer in Compromise) was the best option possible.  The client’s earning ability was severely diminished due to a chronic illness that could potentially be lethal.  We completed all necessary paperwork, filed the case with IRS and then advised client to continue staying compliant with all future federal tax obligations.  When IRS finally responded, we negotiated with them on the final settlement amount, and obtained an extremely favorable outcome, essentially settling 10 cents on the dollar.

The client was ecstatic and thankful.  We were happy that we made a tangible improvement to a life of a human being.

2.  The disability severance payment allowed as tax free

A client asked Davidoff & Associates to make the disability severance payment received from Veterans Administration (VA) non-taxable, per not well known IRS regulation. That would have saved the client about $18,000 in taxes.  We filed client’s return with the special election and enclosed all supporting documentation.  While IRS has sent two notices that were interpreted as their reluctance to grant the tax-free status to the VA payment, we continued our adjudication efforts, and with our diplomatic insistence and perseverance, IRS finally conceded and issued a refund.

3.  Lien and wage garnishment removed

Client’s tax returns for the last six years were not filed.  IRS has been contacting the client for almost two years requesting to file their delinquent returns before filing liens against client’s property and garnishing their wages.  The client has retained Davidoff & Associates to have the lien and garnishment removed.  We have worked with the client on compiling all support documents for the tax return preparation, and then prepared and filed all delinquent returns.  After giving about 60 days for processing, we contacted IRS and initiated a procedure for removing liens and garnishment.

Client could not thank us enough once they could once again use their bank accounts, get full take-home pay, and most importantly, got the refund for most of the funds impounded while the lien was in place.

4.  Income client forgot to include in originally filed return

Our new client has misplaced the 1099-B form that his brokerage firm issued to him for prior year, and as a result, Davidoff & Associates was not aware that the form exists.  We filed his return on time, and then several months later our client received an IRS notice listing the sales proceeds of his mutual funds and individual stocks as income, without regard to any cost basis.  IRS has also charged a late payment and substantial understatement penalties, as well as interest.  The client was apologetic that the form had never been provided to us and pleaded with us to intervene.

We have prepared and filed an amended tax return showing all proceeds and cost basis.  In the process, our client also recalled that there were some deductible expenses that he has never communicated to us, and we included these in the amendment as well.  Finally, IRS sent a letter removing all assessed tax, penalties and interest, and actually issuing a refund.

5.  Delinquent returns filed with most penalties abated

Our new client admitted to not having filed her tax returns for eight years in the row. IRS has prepared their own versions of most of these returns, as they typically do, showing the tax due, and sent notices to the client demanding the payment of these taxes. We have worked with the client to promptly prepare and file all delinquent returns.  Penalty abatement was going to be a more difficult battle to fight.  Since the client cited a very serious emotional disturbance stemming from a loss in the family, we have crafted a letter to IRS requesting a penalty abatement on one of the grounds IRS accepts.

When the response was received, the client could not believe her luck.  The originally assessed summary penalty of close to $20,000 was reduced to mere $2,500.  Our client agreed to pay much smaller penalty and close that chapter of her life.

6.  Tax planning for a highly compensated employee and homemaker spouse

We have been retained by a new client who works for one of the large pharmaceutical companies in a top management position.  He believed that the amount of taxes his household paid was exorbitant.  We have recommended the tax planning, an engagement that addresses ways a taxpayer can reduce overall tax burden without running afoul of the law.  The client gladly agreed and we got to work.  After an extensive interview with the client, we learned that client’s spouse is a homemaker and has plenty of time on her hands.  We made a recommendation that the spouse take up a business activity that would legitimately generate a loss, at least for the first three years.  One of the options was a real estate rental business.  After explaining all nuances of starting and running such a business and complying with relevant IRS requirements, we calculated the impact on client’s taxes.

The effect was tremendous – with other recommendations yielding even more tax savings, we saved the client about $14,000 in federal and state taxes in the first year alone.  Over the next three years, the savings exceeded $50,000.

The client thanked us for essentially increasing their family disposable income.

 

II.  ACCOUNTING SUCCESS STORIES

1.  Business Segment Analysis

One of our new clients, a gourmet food manufacturer, has asked us to help them understand how different product lines are doing relative to each other. They felt that some product lines may be lackluster, while others may be brand champions and cash cows.  However, it was very difficult for them to measure this as their bookkeeping was done on a summary level.  We suggested that they outsource their bookkeeping to us, and we convert it to the project accounting. They agreed to try this out.  We have determined the best cut-off date (that conveniently fell on December 31), and revamped the books to introduce profit and cost centers, the hallmarks of project accounting.  The data had to be associated with a particular product line and was entered and posted that way.  After a period of about 7 months, we have generated a product line income comparative statement.  That statement showed that 2 out of 9 product lines were actually losing money month in and month out.  The business owner had made a decision to eliminate these 2 product lines to stop the net cash outflow.

In our assessment, it saved our client around $38,000 for the first year alone. Needless to say, our client became our best champion.

2.  Financial Projections and Budgets

We got a call from a prospect who was going to apply for a $1M bank loan to start a micro-brewery.  He needed financial projections in the format acceptable to the bank. He also was not sure whether his financial assumptions were even correct.  We got to work and found that we needed more and better assumptions for various budget line items.  To make sure assumptions were correct, we had to test them using real-life examples, and only then add them to the budget file.  After we had completed the file, we ran various scenarios with different assumptions to see how revenue and expenses would change, and whether the changes would result in the optimal levels that the bank would find acceptable.

We used our knowledge of the industry and bank lending requirements to build a proper model.  In the end, the client did obtain the bank loan based on our model, and went on to open a microbrewery and restaurant in one of the southern states.

3.  Strategic Analysis and Planning

One of our retail clients had a single brick and mortar location and their business was brisk.  At some point, the owners felt that they could not display all of their goods for sale in the single location.  They asked us to analyze whether it would make economic sense to open a second location.  We collected data about the proposed second location and then analyzed the sales trends in the main location.  Next, we created a mock-up income statement showing additional revenues and expenses that the second location would give rise to.  Apparently, the analysis showed that opening the second location would increase the total net income by 12%.  The client received our recommendation backed up by the analysis.

The client did end up opening the second retail location, and their business boomed.

 

If you want to reap similar benefits from the relationship you can build with Davidoff & Associates, please contact us now for a free needs analysis.