Tax refund opportunities Featured

7:00pm EDT February 28, 2007

Don’t let potential tax refund dollars soak into the system without collecting your fair share. Businesses are faced with a multitude of state and local tax issues; Pennsylvania alone has more than 20 different types of taxes. It’s no wonder that companies lose out on refund opportunities. Finding incidences of over-payment is time-consuming, and tax laws are always changing.

“As other business issues become important to an owner, or when there is turnover within a company’s accounting department, some of these state and local taxes are not looked at closely,” says Tim Dudek, a director in the Tax Strategies Group at Kreischer Miller in Horsham.

“Significant refund dollars may exist, but you may lose them to expiring tax statutes,” Dudek adds, noting that after tax laws expire, taxpayers are precluded from recovering refunds. “It takes a seasoned professional who has lived and breathed those taxes to know where opportunities lie.”

Smart Business asked Dudek to discuss why business owners should consult with a specialist who can identify tax refund opportunities.

Why do so many tax refund opportunities fall by the wayside?

State and local tax laws throughout the country are ever-changing and the tax staff at any one company may not be sufficient enough to keep up. That is where opportunities remain on the table — until a third-party specialist uncovers those opportunities, which turn into cash refunds. Once a state law expires, which is normally three years from the time you make a tax payment, you are precluded from going back to recover taxes.

The government certainly isn’t looking for these glitches during an audit. An auditor is more likely to look for tax deficiencies. So it’s no surprise that refund opportunities are overlooked during tax examinations.

What will it cost a business to recover over-paid taxes?

Most of this work is done on a contingency-fee basis, which is normal for this type of specialty service. Fees depend on the amount of the refund that is recovered, so there is never a risk for the company. If the specialist finds a cash refund, the fee is based on a certain percentage of that amount. If no refund is identified, then there is no cost for the service.

Really, business owners have nothing to lose. Even if their refunds are small, they will build a stronger relationship with the accounting firm that conducted what is referred to as a ‘reverse audit.’

Also, these audits build trust. Business owners can rest assured that the firm is working on their side, particularly if specialists are interested in finding opportunities for them to save money — with no penalty cost.

What inspires business owners to request this service in the first place?

Companies call us for several different reasons. They may be losing out on bids because someone else is under-pricing them. They may learn that they are including sales tax in those bid prices when they should not have. Or the company may be in the market for a large piece of equipment, and the vendor may suggest that the owner consult with an accounting firm to find out whether he or she is exempt from paying sales tax.

What happens during a ‘reverse audit’ for overpaid taxes?

A set of policies and procedures are followed to quickly identify, in any given state, the areas most prone to taxes being over-paid. We interview certain personnel at the company and review their accounting procedures. It’s a turnkey process. A company brings us in to look at taxes, and we follow a systematic approach from the first interview to the final refund filing process.

How often do you find refund opportunities?

Almost always. Sometimes the refund may be very large — up to $100,000. Sometimes the refund is $20,000 or less. Most refunds are found in the areas of sales and use tax. But we also look at corporate net income tax, corporate franchise tax, fuels tax, unemployment insurance tax and others.

Keep in mind, these refund opportunities can generate financial statement income, making a statement look healthier to an outside investor. It’s always a good time to take a fresh look at state and local tax liabilities to make sure you are not paying incorrectly or overpaying.

TIM DUDEK is a director in the Tax Strategies Group at Kreischer Miller in Horsham, Pa. Reach him at (215) 441-4600 or