Business Tax Consulting - Avoiding Problems

Every now and then we read through the business decisions issued by the Oregon Tax Court. It’s mostly dry and dull reading, and frankly it’s mostly dismissals (for folks who appeal, but fail to show up for the trial).

But late in August a decision came out that makes clear the need to seek counsel—both legal and financial—when making even ordinary, everyday financial decisions, and to hire a professional business tax preparation firm.

We start with the story of Seth and Tyra Murray. The Murray’s are self-employed and have six kids—all under the age of 13. The year is 2009. The Murray’s have a total income for the year of $19,378. On their tax returns, they claimed Oregon’s “Working Family Credit” against the money they spent on daycare for their six kids. All the kids are home-schooled. The tax credit was worth $7,935—no small sum when your income is $19,378! The Murray’s own and operate a business known as Simple Way. They make rosary beads.

The Oregon Department of Revenue opposed the Murrays’ claim of the Working Families Credit. It seems that the Murray’s did not actually pay their babysitter the amount of $7,935. In fact, as it turns out, the Murray’s paid a sum total of $0 to their daycare provider. It was, in fact, Simple Way which paid the daycare provider the sum of $7,935. The Murray’s paid the babysitter out of corporate funds.

This would have been fine, had the Murray’s had a written business tax policy for Simple Way for the corporate payment of daycare for its employees (the Murray’s), but alas, no such written policy existed. Had the Murrays consulted an attorney ($100’s in fees at the most) they would have known to have a written policy to satisfy the legal standard. Had the Murray’s consulted an Integrity First CPA, they would have known to have Simple Way pay the Murray’s and then have the Murray’s pay the babysitter (though, frankly, the corporate policy is a better approach).

The Murray’s spent over a year fighting this IRS tax problem. It is unclear how much money they spent pursuing this appeal. In the end, they lost. There were several other issues involved in the case, but this was much ado about nothing, as it could have been remedied in 2009 with a visit to the local IFCPA office.

At IFCPA, we have a financial team to tend to our clients’ every need. Our senior partner is also an attorney, so the Murray’s would have been well served by their visit to one of our Salem or Portland offices. Not only would we have saved the Murray’s some time, stress, and money, but they would have obtained the credit and probably have saved even more money taking advantage of our business consulting and tax preparation.

You might think that a purchase or expenditure would be too routine, too mundane to warrant a business tax discussion with your CPA, but in the case of the Murray’s, a 1 hour business consulting appointment could have saved them a lot of trouble, and landed them $7,935 towards a business tax credit on their Oregon taxes. By not spending a couple hundred dollars, they lost that $7,935 altogether. Penny-wise, pound foolish. It’s a hard lesson, but one the Murray’s are unlikely to repeat, don’t you think?