Audit Prevention Case Study

Overview:

When it comes your business, accurate accounting that protects your assets and the interest of your stakeholders is an essential step towards success. However, not all CPA services are created equal, and hiring the wrong person to handle this important aspect of business can have serious implications. A client comes to Chandler & Knowles after suspecting that the CPA they hired to handle their financials was not protecting the interests of their business. Frustrated with inconsistencies and unprofessionalism, they hired the tax expert team at our firm to review their financials, and what we uncovered is a prime example of why experience trumps cheap service.

Client Background:

The owners of a service company suspects that the CPA that handles their financials is cutting corners. To make matters worse, the CPA is unprofessional and does not answer important calls when issues arise. The clients relied heavily on the CPA to handle issues and bring up the right questions about their financials. However, their CPA took advantage of the client’s lack of tax knowledge, and made numerous filing mistakes that jeopardized the company’s S-Corp status and place the business in a higher tax bracket. These errors could have potentially landed the businesses owners with an IRS audit that can cripple their invested efforts in the company. At Chandler & Knowles CPAs, we have over 20 years of experience in protecting business from the IRS and potential loss of assets.

Challenges:

The IRS examines tax filings from businesses very closely to ensure that all financials are reported accurately, and without any inconsistencies along the line. Upon a review of the company’s 2013 and 2014 tax returns, we uncovered the following mistakes that put the business at risk for a costly audit from the IRS:

• Bad Debt Claim: After reviewing the client’s tax returns, we were able to identify that a bad debt claim was filed. The IRS requires businesses to file bad debt claims using Form 1040 Schedule C. However, since the company was accounting on a cash basis, a bad debt claim could never occur unless they operated on credit. This simple mistake made by their previous CPA had the potential to cost the company time and money preparing for an audit from the IRS.
• S-Corp Reporting: Business with an S-Corp filing must report the income of shareholders with the IRS accurately. Following close analysis of the 2013 and 2014 tax returns, we found that the income distribution to shareholders was not reported correctly, putting them at risks for an IRS audit. To make matters worse, this mistake could have resulted in a loss of the company’s S-Corp status, placing the company on another tax level. The financial consequences of this mistake could have cost the company upwards of $70,000, lost time and assets.

Chandler & Knowles Methodology:

The tax experts at Chandler & Knowles carefully inspect every aspect to your tax records to prevent costly audits from the IRS. When you seek services from our practice, we take a proactive approach to ensure that all your business financials are analyzed closely to find ways help save and avert potential risks. We also take every legal deduction on your behalf and prepare quality returns to protect your business and stakeholders from time-consuming RIS audits and costly penalties.

The Results:

While the company was spending less with the former CPA, these cheaper upfront fees served as red flags for careless mistakes that could have cost the owners countless hours defending the case in front of the IRS.

Through the professional business tax preparation services at Chandler & Knowles CPAs, we were able to correct filing mistakes made in previous tax returns that jeopardized the S-Corp entity of the business. Our professional team was also able to save the business a total of $70,000 from a possible tax bracket escalation that had the potential to affect the objectives of the company. Chandler & Knowles now provides the owners with full CPA services for their company in terms that are easy to understand, but most importantly, that shares vision of success for the business.