CLA Helps Mid-Market Manufacturer Achieve $4.5M in Accelerated Deductions

Understanding the situation

CLA had worked with a European-owned chain manufacturer for almost a decade on tax compliance and tax strategy after the company received reactive service from its prior CPA. The company was experiencing major growth and was concerned about a higher tax bill due to its success.

Exploring the challenge

The client turned to CLA for proactive input. CLA explored a variety of tax strategies and credits to address the manufacturer’s tax bill. The approach included:

• Tax credits and incentives — CLA reviewed the company’s opportunities for tax credits and incentives and discovered it qualified for state job creation tax credits and local property tax abatements.
• Cost segregation and Section 179D studies — The company had recently built a new building and using Section 179D deductions and undertaking a cost segregation study accelerated $3 million in deductions.
• Uniform capitalization calculation — A uniform capitalization calculation study showed the company was overcapitalized, resulting in $1.5 million in accelerated tax deductions.

Achieving results

In addition to the $4.5 million in accelerated deductions and state and local tax credits and abatements, CLA is currently working with the manufacturer to amends its tax returns to recast some transactions.

Historically, the company filed its annual returns as a minority shareholder of a foreign subsidiary. However, since the company would receive 100% of the proceeds upon liquidation, it may be treated as the 100% owner for U.S. tax purposes. To align with this treatment, the company is working to amend its tax returns for the prior five years.

The foreign subsidiary has now been officially liquidated, and the liquidation was eligible for tax-free treatment.

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