MP Star invoice factoring business case study: Invoice factoring leads to settlement with IRS – and saves business

It’s true, what they say. Bad things CAN happen to good people.

Everything looked promising for the owner of a Chicago based security services company. He had been in business ten years. He had a great client list and a good reputation in the community. His clients were happy. His employees were happy. The company was poised for a period of great growth.

But then…

The company was hit with a serious lawsuit.

IRS Problems

The details and particulars of the legal troubles aren’t relevant, but what happened next is, certainly.

The owner’s lawyer fees, court costs, and administrative expenses related to the suit quickly spiraled out of control and became a major, unexpected expense for the company. There were no bad intentions on the part of the owner – just a streak of seriously bad luck.

Here’s the really bad part: As the legal fees mounted and needed to be paid, cash flow became a serious problem for the first time in the company’s history. (After all, who has an “in case we get sued” budget?)

The situation forced the owner into a “rob Peter to pay Paul” situation. To take care of his lawyers and meet the other expenses tied to the suit, he stopped, almost without thinking about it, paying his payroll tax obligations to the IRS.

He wanted to make it right. But a couple weeks turned into a month. A month turned into a couple months…

It didn’t take long for the Tax Man to figure out what was going on. They put a lien on the business and slapped on penalties, fines and interest charges – some at 20% of the original amount owed. It looked like the company was going down and that the owner was headed for financial ruin.

The Action: contacting MP Star to discuss the legal problems, including IRS problems

The owner contacted MP Star Financial for help. He explained the situation, including his IRS problems, and asked about his options.

MP Star met with the owner and reviewed the matter. It turned out that the company had enough outstanding and projected receivables to cover the tax obligations and its usual operating expenses.

It boiled down to this: The company was the victim of huge legal expenses and slow-paying (almost 60 days) customers. There was going to be enough cash. There just wasn’t enough cash right now.

MP Star contacted the IRS. MP Star then submitted a “letter of subordination” on behalf of the company, proposing an arrangement where the delinquent tax obligations – and current tax payments – would be paid to the IRS first, directly from invoices sent to straight to MP Star.

The Result: IRS Settlement

The IRS accepted the plan.

The tax debt was paid-off in three years. The company has recovered from the impact of the lawsuit and the IRS problems and continues to thrive today.

The Lesson

Don’t make the mistake of underestimating the IRS. Their penalties are harsh and their fines can be severe. But there are legitimate, workable, legal ways out of your tax problems, such as the IRS settlement described above.

For more MP Star Financial invoice factoring case studies:

Business Case Study: Invoice factoring helps new company get over the start up hump

Business Case Study: Invoice factoring helps company win major contract

Business Case Study: Invoice factoring helps company survive cash flow interruption

Business Case Study: Invoice factoring partnership boosts company’s exports

Business Case Study: Invoice factoring works when business is good…but cash flow is terrible

Business Case Study: Invoice factoring makes corporate buy-out possible

If your receivables can cover most of your obligations, MP Star Financial can help. We can review your options and, when necessary, bring in other tax experts to assist with your case. Don’t go it alone! Call MP Star Financial, the invoice factoring experts, in complete confidence at (800) 833-3765, extension 150 – and watch for the next business case study where invoice factoring comes to the rescue.

 

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