Art of Accounting: To Save a Business, Plan the Details

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IMGCAP(1)]In last week’s column, I discussed how I went about saving a client’s business that the IRS was in danger of closing. Now here is the nitty-gritty.

The owner wanted to be able to walk away without her business. She would be broke and would lose her house, but she wouldn’t have a continuing debt for unpaid payroll taxes. When I met with the IRS revenue officer, I presented a plan where the company would continue in business, with the IRS getting all the “excess” cash flow until the taxes were paid in full.

I assigned different roles to each person involved with the client. The controller had to go to the main supplier and ask them to put a freeze on the past-due payables, but that they would remain a customer paying COD for all new purchases. He also had to get a one-year freeze on the unpaid workers’ compensation liability, and make cost-cutting recommendations.

The owner had to get more sales and needed to get the landlord to reduce the rent by 40 percent for the next year. The lawyers needed to get the bank to put a freeze on past-due amounts and ongoing principal payments, but all the new interest would be paid currently. Anything that could not be done would kill the deal.

I checked in by phone every few days. I was needed for a couple of meetings that I traveled to, but everything went well except for the bank that refused to do anything other than get full payment for the past-due amounts and have the loan paid currently based on the terms. The lawyers said they could handle it, and did not need me to get involved. I told the lawyers that we were running out of time because I needed to report to the IRS revenue officer on whether we could pull it off, and the bank refusing to do anything was a deal breaker.

They told me not to worry and we set a deadline date a week before my IRS meeting. They called me at that time to tell me the bank would not budge, and I told them I wanted to call the president of the bank. I asked them very clearly if there was anything I could say or do that would make the situation worse and they said no. As far as they were concerned, it was a dead deal.

I then called the president of the bank, who was expecting my call, and explained the seriousness of their refusal. When I was sure she would not give in at all, I said a few very rough-language things to her, told her I needed a positive answer by Tuesday and hung up.

She immediately called the attorneys to express her anger and dismay at what I said to her and that she never wanted to be in a position to have to speak to me, but that she would rethink the bank’s position and would call them Tuesday, at which time she accepted everything we asked for.

I met with the IRS revenue officer on Thursday and we had a deal. The first payment to the IRS under the plan took place about six months afterwards, and they were eventually paid in full. The business was saved, and 80 people kept their jobs. After the year the landlord had a full-paying tenant until my client outgrew the premises. The client did not have to file for bankruptcy and grew to become very successful.

You might want to know what I said to the banker. It will remain known only to me and the person I spoke to, along with the client’s lawyers to whom she told some of what I had said. It was not nice, but I was not talking to a nice person.

Edward Mendlowitz, CPA, is a partner in WithumSmith+Brown, PC, CPAs. He has authored 20 books and has written hundreds of articles for business and professional journals and newsletters plus a Tax Loophole article for every issue of TaxHotline for 27 years. Ed also writes a blog twice a week that addresses issues his clients have at He is the winner of the Lawler Award for the best article published during 2001 in the Journal of Accountancy. He has also taught in the MBA graduate program at Fairleigh Dickinson University, and is admitted to practice before the U.S. Tax Court. Ed welcomes practice management questions and he can be reached at WithumSmith+Brown, One Spring Street, New Brunswick, NJ 08901, (732) 964-9329,

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