Who is Guardian Tax Consultants?

Guardian Tax Consultants™ is a pioneering company that has expanded the use of Management Service Organizations (MSOs) beyond the healthcare sector. Our mission is to protect assets and reduce taxes for privately held companies and small business owners, ensuring their long-term financial stability and growth.

What is an MSO?

A Management Service Organization (MSO) is a business entity that provides various essential services to an Operating Company (OC). These services include:

• Business Management: Streamlining operations and improving efficiency.
• Human Resources: Managing recruitment, employee benefits, and compliance.
• Staffing: Providing skilled personnel to meet business needs.
• Information Technology: Ensuring robust IT infrastructure and support.
• Accounting: Handling financial records, audits, and tax filings.
• Marketing: Developing and executing effective marketing strategies.
• Sales: Driving revenue growth through optimized sales processes.
• Other Administrative Services: Covering all additional support services required by the business.

By consolidating these services under an MSO, business owners can shift income from higher individual tax rates to the lower corporate tax rates, thereby achieving significant tax savings.

How the MSO Saves Taxes

One of the most compelling benefits of the MSO structure is the tax savings it offers. By converting income from a pass-through entity, which is taxed at individual rates up to 37%, to a C-Corporation rate of 21%, significant tax savings can be realized.

For instance, consider an individual with $1 million in excess income. If this income is taxed at the individual rate of 37% plus the 3.8% Net Investment Income Tax, the total tax would be $408,000. However, if the same income is shifted to an MSO structured as a C-Corporation, it is taxed at the flat corporate rate of 21%, resulting in a total tax of $210,000. This shift results in a savings of $198,000, which can then be reinvested into the business or used for other strategic purposes.

How the MSO Protects Assets

An MSO provides robust asset protection by functioning as a separate legal entity. This separation ensures that the MSO’s assets are insulated from the liabilities and legal actions of the operating companies. By owning valuable business assets through the MSO, business owners can shield these assets from potential claims against the operating companies.

Furthermore, this protection can be amplified by having the MSO owned by a trust. A trust ownership structure adds an additional layer of security, safeguarding assets against personal liabilities of the business owners and ensuring that assets are managed according to the specific terms set out in the trust.

Compliance is Critical

To ensure the MSO structure is effective and compliant with IRS regulations, it is critical to document the business purposes of all transactions and services. This involves maintaining thorough records that detail the services provided, the fees charged, and the justification for these services. Proper documentation helps to substantiate the MSO’s operations and can protect against potential IRS challenges. Regular audits and reviews should be conducted to ensure ongoing compliance and to adapt to any changes in tax laws or business operations.

It is also important to document the business purposes for establishing the MSO and to outline how any accumulated earnings in excess of $250,000 will be utilized for future reasonable business needs. This ensures transparency and adherence to IRS guidelines, protecting the business from unnecessary scrutiny.

Our Proprietary Process

Initial Consultation

We start with a thorough consultation to understand your business needs and identify potential tax-saving opportunities. This involves assessing the current financial and operational structure of your business.

The TRA Tax and Risk Assessment Report

As part of our process, we conduct a comprehensive Tax and Risk Assessment (TRA) report. This detailed report provides an in-depth analysis of your business’s tax and risk profile, offering numerous benefits:

• Business Valuation: Understanding the estimated value of your business, which is essential for strategic planning and decision-making.
• Risk Identification: Identifying potential risks that could impact your business, such as key man risks, estate liquidity issues, and buy-sell agreement considerations.
• Tax Deferral Confirmation: Verifying the potential tax deferral benefits of implementing an MSO structure.
• Reasonable Compensation Report: Ensuring that compensation arrangements within the MSO are compliant with IRS guidelines.
• Wealth Accumulation: Providing strategies to accumulate and protect wealth through effective tax planning and risk management.

The TRA report is a 50-page document prepared by tax attorneys and business valuation experts, ensuring that you have a thorough understanding of your business’s financial health and the potential benefits of the MSO structure.

Implementation and Execution of Setting Up the MSO

An MSO is set up using a new business entity structured as a C-Corporation. This entity establishes Management Service Agreements (MSAs) that outline the services it will provide to the operating companies. These services can range from administrative and management tasks to specialized support in IT, HR, marketing, and more.

The process works as follows:

1. Creation of C-Corporation: The MSO is established as a separate C-Corporation.
2. Management Service Agreements: MSAs are drafted to specify the services the MSO will provide to the operating companies.
3. Reasonable Compensation Study: A reasonable compensation study is conducted on the services provided. This ensures that compensation arrangements are fair and compliant with IRS guidelines.
4. Management Fee Calculation: Independent tax attorneys perform a valuation of direct labor to operating company margin to determine appropriate management fee ranges.
5. Provision of Services: The MSO delivers the agreed-upon services to the operating companies.
6. Invoicing: The MSO invoices the operating companies for the management fees associated with the services provided.
7. Payment Transfer: The operating companies transfer the management fees to the MSO, thus shifting income from higher individual tax rates to the lower corporate tax rate.
8. Compliance on Accumulated Earnings: The business purposes for establishing the MSO are documented, including how any accumulated earnings in excess of $250,000 will be utilized for future reasonable business needs.
9. Plan for Using Funds: A plan is developed for using funds from the MSO, taxed as a C-Corporation, to grow the operating business and the total enterprise. These funds should not be in the form of a dividend unless the owner wants to personally consume the funds.

In addition to these steps, we handle numerous additional implementation and execution items. Our proprietary process involves over 200 internal steps for compliance to ensure you are best protected for audit. This comprehensive approach guarantees that your MSO is set up and managed correctly, providing maximum tax savings and asset protection.

We deliver with white-glove services, including:

• Legal Setup: Drafting and filing necessary documents, performing name checks, obtaining an EIN, and creating articles of incorporation (source).
• Bank Account Setup: Establishing business bank accounts and prepaying necessary fees to ensure smooth financial operations.
• Onboarding Support: Providing comprehensive support throughout the first fiscal year, including coordination with lawyers and accountants.

Annual Compliance

We offer ongoing support to ensure compliance with tax laws and regulations. This includes:

• Quarterly Business Value Tracking: Regularly updating the valuation of your business to reflect its current market position.
• Document Updates: Keeping all legal and financial documentation current and audit-ready.
• Validation: Regularly validating the MSO structure to ensure it continues to meet legal and financial requirements (source).

Expert Validation

Guardian’s MSO process has been reviewed by the esteemed business law firm Handler Thayer, ensuring confidence in our methodology. Handler Thayer is renowned for their expertise in tax law, business structuring, and asset protection. Their comprehensive review guarantees that our MSO strategy is not only effective but also compliant with all relevant laws and regulations. This expert validation provides our clients with the assurance that they are receiving top-tier advisory services.

Coordination with Your CPA and Advisors

At Guardian Tax Consultants™, we work closely with your existing CPA and advisors. Our role is to complement your current team by providing specialized consultancy focused on federal income tax reduction and asset protection. We do not replace your CPA or other advisors, nor do we handle accounting work or file tax returns. Instead, we provide the strategic insights and coordination necessary to maximize your tax savings and protect your assets.

Our Results

Guardian’s MSO process has been reviewed by the business law firm Handler Thayer, ensuring confidence in our methodology. Our clients have seen substantial benefits, including:

• Asset Protection: Enhanced protection of business assets from legal and financial risks.
• Tax Reduction: Significant reduction in overall tax liabilities, improving profitability.
• Increased Cash Flow: Improved cash flow management for business operations, allowing for reinvestment and growth.
• Flexibility with Tax Law Changes: Ability to adapt quickly to changes in tax laws, maintaining compliance and optimizing tax savings.
• Capital Creation: Increased capital for business reinvestment and growth, providing financial stability.
• Synergy with Other Strategies: Effective integration with other tax mitigation strategies to maximize overall benefits.

Average Tax Savings

Through our MSO program, clients can expect to see significant tax savings. On average, our clients achieve tax savings ranging from $100,000 to over $1 million annually, depending on the size and structure of their business. These savings are crucial for reinvestment, operational improvements, and enhancing overall financial health. We have a 100% retention and use rate for our MSO clients.

Qualification

Our target clients are privately held companies and businesses with a net income of $2M – $10M, typically owned by sole proprietors or small partnerships (less than four partners). These clients benefit the most from our MSO strategy due to the significant tax savings and asset protection it offers.

Next Steps

If you are interested in exploring how Guardian Tax Consultants™ MSO program can benefit your business, connect with your tax advisor to discuss the potential advantages and opportunities. For more information, contact us at info@guardiantaxconsultants.com or call 615.879.4738.