At Tom Vignali CPA, Inc., we utilize a critical analysis approach when reviewing the needs of a client company. We are frequently asked to address a specific problematic issue, but our review methodologies invariably uncover a myriad of other mitigating and conflicting issues that present a significant threat to the business. In many instances, the problem presented by the client is the result of a variety of other issues, which have been ignored or simply overlooked. The oversights imposed by local, state and federal governments and regulatory agencies can be overwhelming, and the identification of one problematic issue is usually the result of a variety of non-compliance activities on the part of the business. Our critical analysis approach provides for a comprehensive review of all regulatory and compliance issues to definitively identify the root cause of the problem and related causes and effects.
One problem leads to another
Recently, a new client requested assistance due to the receipt of a “blocking letter” from the state division of taxation that basically was ordering the company to cease and desist from all future activities due to non-payment of taxes. This was not the first communication from taxation, but it was the most threatening. The client company had been operating in two states since 2019 and had been using an accountant to process all necessary paperwork. We requested all relevant financial and accounting data from the previous accountant, which took over a week to obtain.
When the financial data was finally received, it identified a massive failure of adequate financial posting and filing with regulatory agencies. We initially converted the accounting from QuickBooks Desktop to QuickBooks Online to facilitate remote data review and reconstruction. We set up the company to include class tracking in each state location and recreated 2019 and 2020 financial records for both state locations, reconciled cash, and posted all transactions the General Ledger (something that had never been done in the past).
Two EINs, lots of confusion
Despite the fact that the client company had used a payroll processing company, due to numerous non-compliance issues on the part of the client company, the payroll company had refused to file federal 941’s for 2019. We recreated all necessary data and filed the necessary forms. One of the major problems since the creation of the business was that their EIN (Employer Identification Number) had been changed in 2019, but they had continued to use the old EIN rather than the new one, which created massive problems and issues for tax agencies.
We had to merge the financial data from the old EIN to the new EIN and register the new data under the new EIN with the divisions of taxation in both states. This required extensive communications and negotiations with the divisions of taxation and revenue in both states to address compliance with collection of sales tax, withholdings and employer taxes. The fact that the client had initially set up the business as a sole proprietorship using one EIN, but then converted to a corporation with a new EIN, never having converted the financial data from one to another and continuing to use the old EIN for the new EIN activities only complicated the potential problems.
We then had to calculate sales taxes due (including penalties and interest) in both states using the client’s POS system. We identified that the POS system did not adequately calculate the accurate sales tax in one state and adjusted QuickBooks to account for this oversight.
Rectifying matters
Resulting financial calculations revealed 15K due in taxes for one state (18K with P&I) and 5K due in taxes for the other state (P&I included). We negotiated a down payment and payment plan with the division of taxation in one state and rectified the payments the client had made and taxes due in the other state using the old EIN, converting them over to the newly formed corporation and new EIN. Then we recalculated and filed all tax forms due from the inception of business to the current period. Once filings were made, the Secretary of State in one state declared the company in non-compliance with corporate filings, and we immediately filed the necessary corporate annual filings to come into compliance with state regulations.
The previous accountant had never filed corporate filings in one state, where the company had continued to operate as a sole proprietorship. We immediately filed documents as a corporate entity in that state and set up a link to facilitate online and accurate tax filings. Due to all of these problems, the payroll company had refused to file unemployment and family medical leave filings for various tax periods in one of the states. We rectified these problems and filed all necessary tax and reporting documents.
Additionally, we filed the required HazMat compliance reports due for restaurants.
Restoring business health
In summary, we had been approached by a new client that indicated they had one problematic issue to be addressed, a tax letter from one state’s division of taxation regarding non-payment of taxes. Our critical analysis approach basically identified numerous problematic issues, much more extensive than one tax letter for one state. We had to recreate all of the financial records since the inception of the business in two states, re-file all necessary tax documents (state and federal) in two states, negotiate payment plans for delinquent tax payments in two states, incorporate the business entity in two states, and create a new financial accounting process.
Sometimes a client requests that we address one specific problematic issue. In this instance, that one issue was just the tip of the iceberg. Our critical analysis approach not only addressed the tip of the iceberg, it identified the iceberg itself, which was lurking just beneath the surface and could have potentially destroyed the entire company. We don’t just resolve problems, we resolve the total health of a company.
If you would like to further discuss this issue or any other accounting issues, don’t hesitate to contact us at: Tom Vignali CPA, Inc.
Contact Us:
Thomas W. Vignali CPA Inc.
118 Point Judith Road
Narragansett, RI 02882
T: (401) 415-0798
tom@tomvignalicpa.com
www.tomvignalicpa.com
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