The $2.5 million tax refund that left with one analyst

Tax compliance has spent a century near the bottom of the executive agenda: a back-office function that files on time, pays what is owed and is rarely discussed at board level unless something goes wrong. Ryan Padget, president of IGEN, a US tax compliance automation company, argues that this is exactly the problem, and he has a case to show what it costs.

In written answers to Disrupts, Padget described a mature financial services organisation that lost a tax analyst during the pandemic, and with them the only working knowledge of a state refund filing obligation. Five years later the firm found a $2.5 million refund it was nearly out of time to claim. His remaining answers cover trapped working capital, why the pressure is arriving now, and what the organisations that get this right do differently.

The case Padget chose is not one of negligence. The organisation had people, processes and what he calls reasonable controls. What it did not have was institutional knowledge embedded in its systems.

"They saw a tax analyst exit the company during COVID, and while the remaining team members absorbed the workload, that person's departure left a knowledge gap," he said. "What this person knew, and what the rest of the team didn't, had to do with refund filing obligations within a state they covered. The systems in place never flagged an issue; the existing processes didn't capture it, and no one knew to dig deeper."

The refund was discovered five years later, by which point the statute of limitations had almost run out. The organisation hopes to recover around $600,000. The remaining $1.9 million, Padget said, "is effectively written off, not as a penalty, not as a fine, but as money that was owed back to them that they will never see".

"That's the version of this problem that doesn't show up on anyone's risk register until it's too late to recover fully," he said. He added that the risk compounds as AI tools take on more of the routine compliance workload in organisations that have not operationalised the human expertise behind it.

Pennies per gallon and $137 a day

Asked to put a scale on the phrases that usually accompany this argument, trapped working capital and margin leakage, Padget started with fuel distribution, where margins are measured in pennies per gallon. "A single compliance misstep in a transaction can eliminate the margin on the next hundred truckloads of fuel," he said. "We've seen situations where a single wrong transaction wipes out what would otherwise have been a profitable run: an incorrect license validation, a missed exemption, a misclassified product."

The working capital side is less dramatic and, in his description, more pervasive. When finance teams lack confidence in their compliance data, the rational response is to pay early and file early to avoid late penalties. Every $1 million of tax paid early costs $137 a day at a 5 per cent rate of return, and across dozens of jurisdictions and hundreds of filings a month those timing differences add up to liquidity sitting idle. "That drag is real and recurring across the organizations we work with, even when it never appears as a line item anyone is watching," he said.

Technology, in his account, has not closed the gap so much as moved around it. Most organisations have invested in ERP systems meant to create visibility, but tax is almost always the last function those implementations were designed around. Finance ends up with a system that centralises operations while compliance still runs on spreadsheets alongside it, and the manual work compounds risk that may not surface for three to five years, when it shows up in an audit.

A vendor talking his own book

Padget is president of a company that sells tax automation, so an argument that tax deserves executive attention is also a description of the market IGEN sells into. Put to him directly, he did not dispute the point so much as decline to make the sale.

"The $2.5 million refund that walked out the door with an exiting employee occurred at an organization with people, processes, and reasonable controls in place. The working capital drag from early filing is simple math; what is less visible to the C-suite is the confidence in compliance data or key person dependency, but those are real risks every business is susceptible to," he said. The governance risk that builds up inside spreadsheet-based compliance, he added, compounds regardless of which technology a company uses or does not use.

"A CFO who reads this and asks better questions that lead to tighter compliance processes and controls without ever speaking to us has still made a better decision for their business."

Why now

The harder question is why a function that has survived a century in the back office should be urgent now. Padget's answer combined the general pressure of elevated inflation, high interest rates, lingering tariff and supply chain costs and slowing revenue growth with three specific shifts.

The first is demographic. Nearly half of senior tax leaders were over 58 in 2023, he said, and those who have not already retired will do so soon. Excise tax in particular is not taught at university. "Those tax leaders learned the ins and outs through years of accumulated exposure to audits, regulatory interpretation, and judgment calls without clear answers. Without intervention, where does all of that knowledge go when they walk out the office doors one last time?"

The second is the other side of the table. Tax authorities are significantly more advanced than they were a decade ago, with automated data matching, cross-jurisdictional information sharing and more targeted enforcement raising the probability of scrutiny. "The filings still go out," he said. "The question is whether the judgment behind them is as strong as it once was."

The third is AI, deployed in finance and compliance workflows faster than the governance around it is being built. "When an AI agent makes a recommendation or takes an action in a compliance context, someone has to be able to explain that decision to a regulator. Right now, most organizations can't. That's a new category of risk that didn't exist five years ago and is compounding quickly."

The lower-scrutiny, lower-complexity environment in which a back-office tax function could survive, he concluded, no longer exists.

What the organisations that get it right do differently

Every function claims it should be better connected to every other. Padget's case for tax being the one that matters most rests on the nature of the consequences. "Most functions, when they're disconnected, cost you efficiency. Tax, when it's disconnected, costs you cash in penalties, in credits you didn't know you were entitled to, in working capital sitting idle because nobody had confidence in the data, and in audit exposure that builds quietly for years before anyone sees it." Those consequences, he said, are non-negotiable and irreversible.

The organisations that have addressed it share a pattern. They stop treating tax knowledge as something that lives in people and start treating it as something that lives in systems. They create space for their tax analysts to analyse and contribute to strategic decisions, and bring tax into consequential decisions such as an acquisition early rather than late. They build compliance infrastructure that gives leadership real-time visibility of exposure, rather than a spreadsheet reconciled at month end.

"When the data is trustworthy, the decisions built on it are better, shifting compliance from a task to a control point that informs how the business moves," Padget said.

The next test for the organisations he works with is the retirement wave he calls the Silver Tsunami, and whether the knowledge those tax leaders hold has been written into a system before they leave.