Strategic Tax Planning Nets Manufacturing Client $120,000 in Refunds

At Cunningham and Associates, we’ve been helping companies in various industries identify R&D qualifying activities. The result? Thousands saved in taxes and more money invested in their businesses. 

When we meet with clients about R&D tax savings, we take a holistic approach and look at their entire business. In many cases, we uncover other tax and business planning issues during the process of uncovering what tax savings they can get. This recently happened with a manufacturing client. 

Initially, the client reached out to C&A to see if they could obtain R&D credit savings, along with strategic tax planning. During the process, we uncovered issues with the client’s business succession plans that were costing them millions. Here’s how we resolved these issues through strategic tax planning. 

Meet Our Manufacturing Client

Our client is a New England manufacturer who wasn’t taking the R&D Tax Credit. They have approximately 65 employees and bring in 17 million in annual revenue. 

When the client met with us, tax consultants identified the client as a good candidate for the R&D tax credit savings. Our first step was to complete a standard compliance review of the company’s current tax position. During the review, we uncovered some major flaws in the client’s current succession plan. 

The Approach 

We held a series of strategic meetings focused on transitioning the company to the next generation. During these meetings, the first order of business was to help the company develop a process for transitioning succession. 

The current process the company had was highly inefficient due to the permanent loss of potential tax deductions. We identified the key outcomes our client desired and formulated a plan to meet each stakeholder’s goal:

  • Realization of tax benefits from suspended losses and credits
  • The transition of ownership to the next generation
  • Financial risk reduction for the family
  • Estate planning for the exiting owner
  • Estate planning for the purchasing owner

Next, we established a series of action steps to take for reaching these goals:

  • Complete required documentation and studies required to capture tax credits 
  • Complete a formal business valuation
  • Review real estate structure for enhanced benefit and management agreements
  • Obtain an optimal bank financing package
  • Explore owner financing note options
  • Assemble the necessary legal and accounting teams 
  • Create new entity structures and associated tax planning for each
  • Combine the transaction with estate planning goals

The Results

Our strategic tax planning and new entity structuring saved our client thousands in taxes and resulted in optimal asset protection. Here are all of the benefits our client enjoyed from our efforts:

  • Monetization of $5.5MM in suspended losses and credits
  • Lender financing for $3MM of the purchase price obtained tax-free 
  • $3MM in cash to the exiting owner, enhancing overall family wealth
  • Installment note payable to exiting owner constructed to meet Estate Planning Goals
  • New entity structure and tax planning yielding another $120K in year one tax refunds to the new owner

At Cunningham and Associates, clients in various industries come to us for help obtaining R&D Tax Credits. But sometimes, in the course of our work, we uncover other opportunities to save our clients money and protect their assets. Contact us today at (508) 797-5003 for a strategic tax and estate planning consultation. 

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