“As a practicing CPA, I have always looked for the tools and techniques that we can develop with our clients to manage their tax liability. I often get the feeling that I have done everything I know how to do with certain clients, and I know that it is time to look at more sophisticated tax planning. What I have found with Capital Preservation Services and their legal team is that they have highly effective tax management tools that come from an in-depth dive into the tax code. Their answers are grounded in tax expertise, and then they are there to help coach the client into laying all the groundwork to support the tax savings plans.”
- Tom Byrne, CPA,Tupelo, MS
“I have been working with Capital Preservation Services since 2012. I hold each of the advisors, I have worked with, in high regard. We have learned a lot from one another and work together for the benefit of our mutual clients. If you are in the highest tax bracket, call CPS.”
- Renee Moore, CPA, Hattiesburg, MS
How We Work With CPAs:
We seek to deepen the relationship between the Client and the Client’s CPA by working together to improve the Client’s marketing and tax savings. We do not prepare tax returns but share the information on the recommended strategies for the CPA to accurately prepare the tax returns. We have consulted with and learned from CPAs of our Clients over the years and have determined the best ways to report actions. While we believe that the engagement of our services is a business and not an accounting decision, once the Client engages us, we seek to actively include the CPA in the process.
Our CPS Proven Process involves:
- A solid Marketing Plan with marketing implementation for solid results
- Design of the Plan by a Tax Attorney with a Masters in Taxation and over 30 years of experience
- Compliance with the Code in the design
- Implementation of proven strategies
- Education of the Client on Substantiation
- Tax Return Preparer protections
- Consulting Relationship with the CPA to lower taxes and accurately file the returns for the Client
- Annual Review of the Clients actions and substantiation
- Annual Year End Meeting
If you become involved in our organization, you will have the opportunity to see not only the professionalism of our people, but also the quality of the Clients and their CPAs. If you are tasked with the returns of a Client, we hope you will take advantage of the events we have to continue the education of our Clients and CPAs in the strategies, and you will share your experience and knowledge with the rest of us. We use the team approach for the best results for the Client.
The Plan starts with marketing. We believe if a Client will follow our recommendations, gross income and net income will rise. While the Client will spend more money and time on marketing than before the plan, we have seen time after time, our Clients make more money.
We have a dedicated team of Marketing Professionals who make an assessment as part of the Plan. This assessment will state the current marketing efforts and then list the actions to take. Options will be offered for the Client to implement the recommendations internally and then review it annually with these Marketing Professionals. Other options will be a hands on monthly plan with the Marketing Professionals implementing all or certain parts of the Marketing Plan.
We believe strongly in the value of peer review. Our Clients solicit the input of others in the same business or in other fields of business which can help the business of the Client. These persons are given financial incentives based on the success of the assistance. Our Clients report new and innovative ideas have come from this process.
A Team Using Diverse Talents
Of course a football team of only great quarterbacks would be a bad team. You need linemen, receivers, linebackers, defensive backs, and so on. The implementation of a marketing and tax plan takes a team of professionals with differing skills. The marketing needs persons wholly dedicated to marketing.
As a CPA does the annual tax returns and is educated in the difficult task of correctly preparing the tax returns, there is a general belief that a CPA is trained to assess the plan for compliance with the law. We support that a good CPA is a necessary part of the team, but each team member has limits.
The restructuring involves the addition of additional entities, which requires a knowledge of the legal complexities under state law. These legalities affect the success of the plan as actions must be respected under state law. As professionals in tax preparation are not trained in the elements of the legalities, they are not equipped to opine on whether the structures meet the legal requirements. Good CPAs know the line between accounting and the practice of law. We have never seen a CPA opine on our recommendations: so we have found that expecting a CPA to take this action creates confusion and slows down the process. Furthermore, we do not want to put CPAs in a positon for which they do not have the necessary background. We have received the thanks of many enlightened CPAs on this difficult issue.
We have many CPAs doing tax returns for our Clients. These CPAs have become comfortable with the strategies implemented and are valuable team members, participating in the year end meetings and annual review meetings. While we do not expect referrals from CPAs we nevertheless commonly receive referrals from CPAs.
In the design of the tax portion of the plan we take into account many tax concepts and Code sections. We have done many plans and have had these reviewed by many CPAs, who now file the tax returns for our Clients. We also listen to our CPAs, and we have and will modify our plans if a good point is raised. So the plans have been reviewed by many CPAs allowing us to make the plans more and more sound. And we invite the comments of all of our CPAs as we get stronger by having great minds at work.
As you may imagine from the above discussion, we are not going to overlook something as obvious as the economic substance doctrine, the ordinary and necessary test, or the controlled group rules; therefore, we will discuss them below:
Our process involves the testing against the economic substance doctrine found in Section 7701(o) of the Internal Revenue Code. As you may recall, Congress codified the old sham transaction doctrine, business purpose rule, and other related case law theories into this Section. Generally, to be respected for income taxes, the structure must be different after as contracted as before in a meaningful way apart from the income tax consequences, and there must be a substantial purpose behind the action. We will not advise action which does not meet this test.
We also test as to whether an expense is “ordinary and necessary” under Section 162. Is the item “ordinary”: common in the industry and necessary; or: “helpful”. To assist in this, we obtain their party comparables and we do budgets for the entities. Then as this is a facts and circumstances test, we take a big picture view to make sure the structure and the individual parts are reasonable.
We review the controlled group rules and affiliated service rules to determine if any entities may be combined or treated as separate entries under the code. The structure determines the applicability of these sets of rules. Of course we control the structure in advance, so we can ensure compliance in advance.
We back up the recommendations with a reasonable cause legal opinion which specifically addresses the recommendations. This legal opinion provides protection for the tax preparer as well as the Client. Under the Regulations, if the tax preparer advises the Client of the potential penalties and notes that in the work paper, the Code provides strong protections for the tax preparer from tax preparer penalties.
Substantiation is a big issue for us. Even if the recommendations are fully supportable in the law, but the correct records are not kept, an audit may be lost. We provide a calendar specifically designed for the substantiation of the specific strategies, complete with examples and definitions. In the annual review meeting, we review samples of the substantiation. So we pre-audit the records. If a Client habitually does not keep acceptable records, we remove the Client from our Audit Defense Plan.
We also conduct a fiscal year end meeting whereby we take action before it is too late. We encourage Clients to allow the CPA to participate.
Early in the calendar year, we review the activity of the prior calendar year and back test the tax savings against the actual tax savings. If the tax savings are not as expected, corrective action is taken. We review the substantiation of the Client and make suggestions. If we have developed a new strategy which fits the Client, we add that to the plan. We do annual minutes and updates with the Secretary of State. If the Client’s CPA is performing any of these functions, the CPA usually continues to handle that function. While the CPA is responsible for the filing of the tax returns, we like to review the returns to make sure we are communicating.
In the event of an audit of a Client engaged in the Audit Protection Plan, we defend our recommendations for no additional charge. We use our CPS Audit Defense Process to defend the audit. We advise the Client to include the CPA in the process.
Our recommendations reduce the chances of audit as our restructuring plan results in lower taxable income. As a result the differential scores are lower; therefore, our Clients have fewer audits than would have been the case previously. Also, our Clients are difficult audits, as the records are so well kept and the strategies are sound.