The Truth Will Set You Free: Navigating Financial Production & Analysis

Financial Analysis with the IRS - The Complex Tax Law Firm, LLCI firmly believe that the saying “the truth will set you free” perfectly encapsulates the importance of accurate financial production when dealing with the IRS. Whenever I work with clients facing IRS issues, I emphasize the need for transparency. I tell them, “Give me everything.” It’s crucial not to hide any financial details. Whether you have a Maserati in the garage or other assets, I need to know about them so that I can protect your interests effectively.

In numerous instances, when a client employs both a bookkeeper and a CPA, their financial information tends to be well-organized. However, there are times when family members, such as an ex-spouse or a daughter who is studying accounting, take charge of managing the books. As you can imagine, this type of situation can easily result in a more complicated case review. Regardless of who is responsible for bookkeeping, it is imperative that the business owner conducts a meticulous review of the financial records. It’s not uncommon for owners to think about hiding specific information, either under the assumption that it’s irrelevant or out of fear that it might provoke additional demands from the IRS.

But here’s the key: Honesty is paramount. Sharing all relevant financial information allows me to represent you better. The financial production serves as a critical negotiation tool, offering insights into the business’s financial health, its liabilities, expenses, and overall financial landscape. When I have all the necessary information at hand, we can negotiate more effectively. There have been instances where a client’s financial statement suggested they could pay the IRS $50,000 per month, but a closer look at their bank statements revealed a different reality. Remember: To avoid delays and to achieve a fair outcome in negotiations, every possible discrepancy needs to be addressed and resolved.

I’ve been caught by surprise far too many times when undisclosed assets suddenly emerge in the financial picture. It could be a boat, real estate, or other possessions that the client never mentioned. Regardless of what it is, when the IRS uncovers such assets, it can create problems because it will appear as though you were intentionally hiding information.

For example, I recall one memorable case where a client, who owned a horse stable, failed to disclose several horses registered under the business’s name that had been purchased as a gift for his daughter. The IRS discovered them and was pushing for their sale. Unsurprisingly, a heated conversation ensued between myself, the client, and the revenue officer. By the time the call was over, my client was so upset that he was threatening to harm the horses just to gain control of the situation. Thankfully, that didn’t happen, and we managed to find a solution that both allowed him to keep his daughter’s horses and restructure the negotiation.

Of course, not every situation escalates to the level of intensity as the one in this example, but it’s quite common for personal and business assets to become a contentious matter. This is yet another reason why having a professional by your side who can evaluate the situation from a broader perspective is beneficial for both the client and the IRS. Our objective is to secure the best possible resolution – and sometimes that means stepping back from emotionally charged situations and directing our attention to the facts.

Regular Financial Analysis Is Paramount

In the context of IRS matters, it’s always a good idea to be aware of your financial risks and find ways to trim your tax bill. While having a CPA or bookkeeper helps you keep track of your income and expenses, it’s equally important to conduct an annual analysis of your profit and loss and carefully review your bank statements. In part, this is because finding an issue after just one quarter of imbalances is much easier to address and fix than waiting for three years of problems to pile up. That’s why we strongly encourage staying on top of your finances and making plans to minimize your tax liabilities. The alternative, paying penalties due to late filings, like your 941, as they continue to compound is like throwing salt in the ocean.

Of course, there are times when people just aren’t aware of these issues. In fact, I once had a client facing $30,000 in penalties for late filing of their income tax returns. Their CPA had all the necessary documents, but just didn’t submit them on time and rolled the late filing penalties into the total balance due. The client wasn’t foolish to trust their CPA, but they could have easily identified the issue by performing a more thorough personal review.

The conclusion here is that it’s crucial to keep track of your financial situation. If you ever find yourself in trouble, having accurate profit and loss statements or well-maintained books makes the process much more efficient and cost-effective. It saves us from needing to extend deadlines, file appeals, or postpone timeframes just because we couldn’t get the financial records in order. Often, a big portion of our work at Complex Tax Law Firm involves just that – holding off the IRS while we work out the company’s financial standing to determine what can be paid. Meanwhile, proactively preventing these issues by getting ahead of them and operating your business with either a quarterly or bi-quarterly bookkeeping system can be extremely beneficial and save you substantial amounts of time, effort, money, and headaches later down the road.

For more information on Financial Analysis And Production, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (303) 720-6573 today.