$35 Million Refund Claim

35M-tax-refundWe attended an introductory lunch with a client based in the Northeast. The client had significant net operating loss carryforwards, and while willing to meet with us, believed that we could offer little in the income tax arena given their huge losses. In fact, the losses were so great that the client had a large valuation allowance as utilization of the losses was doubtful.

We inquired as to the nature of the loss which turned out to stem from a significant law suit in which the client had been forced to repay over $350 million in revenue to former customers. The lawsuit concerned revenue the client received in the late 80’s, a time during which the income tax rate was 46%, then 40% – as compared to today’s rate of 35%. This interesting fact pattern suggested an exciting possibility: that the repayment of this revenue might qualify for Internal Revenue Code §1341 treatment. This bizarre and little known law provides for a taxpayer to treat revenue that it must repay as never having been received. The net result was a claim for $35 million! Even more astonishing, a Big 4 firm handled the settlement accounting of the claim but never brought the refund opportunity to this client. Fortunately we were able to identify the claim before the statute of limitations tolled.

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In Summary, Barnwell Consulting, LLC can:

  • Find state income/franchise tax refunds and have collected millions of dollars in cash refunds
  • Assist with altering corporate structure when good business purpose exists, to help lower state income tax liabilities
  • Assist with FIN 48 accruals, but more importantly with strategies to resolve FIN 48 uncertainty projects that help companies lower the state effective tax rate.
  • Handle complex income and sales/use tax audits and have been successful in eliminating or reducing material assessments
  • Assist clients with SALT issues in acquisitions and divestitures
  • Identify credits and incentives, which fall into two broad categories, statutory and negotiated. With respect to the former, we see our job less as identifying statutory credits – and more focused on whether our client has fully recognized the credit, and obtained the maximum possible benefit.