Tax compliance pays off

How a trusted tax advisor transformed liabilities into assets for this global manufacturer


A privately-held, $350 million multinational manufacturing company was facing a cash crisis. Although the company has been an industry leader for nearly 60 years and controlled 35% of the global market for its product, high prices for oil and steel were driving up the costs of its raw materials, making it difficult to finance its global operations.

"When most private companies have tax problems, it’s because they simply don’t have the internal resources to deal with them," said David Zimmerman, tax leader for PwC Private Company Services practice in the New York metropolitan area. In the case of the manufacturer, that lack of in-house tax expertise had resulted in what Zimmerman describes as a "mess" — payroll taxes that had been misapplied, corporate returns that weren’t being filed on time and unheeded notices from the IRS about payments due. The company had already undergone a series of audits and was fast accumulating penalties and interest on payments due to the government.

The company turned to PwC for help in resolving its tax situation.

"Whenever you see certain occurrences, such as repeated audits, notices about payments due or interest and penalties due, there is actually a strong likelihood that the IRS isn’t posting all its payments properly," said Zimmerman. As a result, he recommended that the client undergo a managed account review of its tax transcript.

Every taxpayer in the country, whether an individual or a corporation, has what is known as a tax transcript, or a record of all the taxes it has ever paid, on file with the government. The more complex the taxpayer’s situation — as in the case of this multinational manufacturer—the more chances there are for mistakes by IRS employees. Managed account reviews are close, technical examinations of tax transcripts that can uncover such errors by the IRS.

The company’s CFO was initially skeptical that such a review would unearth any money. "But I told him I strongly suspected there was something wrong here, and because we have a long-term relationship of trust, he eventually agreed," Zimmerman said.

When PwC’s specialists looked closely at the client’s tax transcripts, they discovered a variety of mistakes, including overpayments, improperly calculated interest, and other tax deficiencies. In the end, PwC obtained nearly $400,000 in much-needed tax refunds for the cash-strapped company, and delivered a more than tenfold return on investment in the process.

"We knew our client was struggling and we identified opportunities to return cash to them," Zimmerman said. "The client was very pleased — and shocked at the same time."