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

We have a 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).

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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.

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The Challenge:

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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.

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The (UN)Conventional Approach we took:

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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:

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• 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

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The Solution:

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

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• 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

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The Impact:

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

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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.

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The Counterfactual:

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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.

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The best part?

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

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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.

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

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

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

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

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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.

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

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Here’s to your success and financial certainty!

Warm regards,

Dan Nicholson

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

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