Tax Due Diligence in M&A Transactions

Due diligence is an essential part of preparing a tax return. It’s more than a best practice, it is an ethical obligation that protects both you and your clients from costly penalties and liability. Tax due diligence can be complex and requires a high level of care, such as the review of information provided by a client to ensure that it’s true.

A thorough examination of tax records is crucial to the success of an M&A deal. It will help a company negotiate a fair price, and also reduce the costs of integration after a deal. It can also identify compliance issues which could impact the deal structure a comprehensive list of vdr software providers or valuation.

A recent IRS ruling, for instance it stressed the importance looking over documents to justify entertainment expense claims. Rev. Rul. Rul.

It’s also important to examine the status of unclaimed property compliance as well as other reporting requirements for domestic and foreign entities. IRS and other tax authorities are more and more scrutinizing these areas. It is also necessary to analyze a company’s performance on the market and identify changes that could impact the performance of its financials and valuation. For instance a petroleum retailer that was selling at an overpriced margins to the industry may have its performance metrics decrease after the market returns to normal pricing. Tax due diligence can help avoid these unexpected surprises, and give the buyer confidence that the transaction is going to be successful.