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Inaccurate Tax Payments

THE CHALLENGE

Overpayment of Taxes. A subsidiary of an international technology device company had inaccurate financials, which resulted in an erroneous tax payment calculation. The company had assumed that their tax preparer had reviewed its financial information for accuracy – which is a common misconception. 

Signature Analytics’ Solution:

The tax preparer used the financial information provided to calculate the tax obligation. Contrary to what some companies may assume, it is not the tax preparer’s responsibility to confirm that all financial information has been inputted appropriately into the accounting system. The reality is that most tax preparers calculate the tax obligation using the financial information provided to them. The company’s responsibility is to ensure that the financial information they provide is accurate for the tax calculation to be accurate.  

We performed a detailed review and identified significant differences in financial information. When reviewing the company’s financial information, we identified several incorrect entries, including duplications of revenue entries and missing expense entries in the accounting system. Making the appropriate adjustments caused the company’s Net Income before tax balance to decrease significantly. As an outcome of this discovery, their actual tax obligation was reduced considerably as well.

ROI: Recovered $120,000 Excess Tax Payment

The company was able to file an amended return to recover the amount they had over-paid; however, the company had been in a tight cash flow position. This excess tax payment hurt the company’s operational decision-making process. Suppose they had not requested that we perform a detailed review of the financial information. In that case, they may have never known there were errors in their system, and the statute of limitations on filing an amended return may have expired. 

Best Practices for Avoiding Inaccurate Tax Payments

  • Accuracy, accuracy, accuracy
    • It is essential to reconcile your accounts monthly.
  • The accounting team should maintain consistent communication with tax preparers.
  • Ensure a detailed review of year-end financial statements before providing to tax preparers.