The IRS asked for $3M, we legally gave them $200K and called it even

Welcome to the Unconventional Wealth Newsletter!

This week’s story is about our client who owned a successful tech studio. They were facing a potential $3 MILLION dollar tax liability (and hadn’t filed taxes in 7 years due to issues with their previous accounting firm).

If you’re a business owner in a complex industry, who pays (or should be paying…) taxes, it’s likely that some aspects of this case study will relate to you.

The Challenge:

A tech studio with annual revenues of $25M receives notice of a $3M tax bill (plus penalties and interest). They had been working with a large, well-known national accounting firm, BUT when the partner handling the account was fired - the new partner disagreed with the previous recommendations… leaving their studio in a difficult position.

The (UN)Conventional Approach we took:

Our team at Nth Degree dove deep into the studio’s financials and the unique tax considerations of their industry. We conducted extensive research and developed a tailored tax strategy that included:

• Implementing a different accounting methodology based on the results of relevant court cases

• Identifying and calculating a substantial R&D tax credit of approximately $1 million

• Amending seven years of tax returns using this new accounting methodology

The Solution:

By applying our industry-specific expertise and strategic tax planning, we were able to:

• Reduce the studio’s potential tax liability from over $3M to approximately $200,000

• Successfully defend an R&D tax credit, resulting in an additional $2.2M in tax savings

• Help the studio secure a $50M acquisition deal with one of the biggest names in tech

The Impact:

Our fractional CFO services not only saved the studio millions in taxes, penalties, and interest but also positioned them for successful acquisition.

This case demonstrates the power of having a team that understands the unique challenges of your industry and can develop a tailored approach to maximize your financial success.

The Counterfactual:

While it’s impossible to say with 100% certainty what would have happened had the studio not worked with us, it’s likely that they would have faced significant financial consequences. Paying the $3M tax bill, missing out on the R&D credit, and potentially jeopardizing the acquisition deal are all possible outcomes that could have occurred without our intervention.

The best part?

This transformation is repeatable. Many businesses in complex industries face similar challenges and miss out on significant tax savings and growth opportunities. 

The key is having an accounting team that stays at the forefront of industry-specific strategies and can proactively identify opportunities to minimize your tax liability and maximize your financial certainty.

If this case study raises questions for you, we encourage you to take a closer look at your own business:

• Are your accounting practices aligned with the unique needs of your industry?

• Are you taking full advantage of all the tax credits, deductions, and strategies available to you?

• Do you have a team that can confidently defend your position in the face of IRS challenges?

If you have any specific questions on R&D or other tax credits, feel free to hit "Reply" to this email.  Your responses allow us to cater our content to what is most beneficial to you.

We're here to help you navigate the complex world of business taxes and achieve your financial goals.

Here’s to your success and financial certainty!

Warm regards,

Dan Nicholson

Founder, Nth Degree CPAs
Author of “Rigging the Game”