Tax Due Diligence in M&A Transactions

Due diligence is a critical part of tax return preparation. It’s not just a best method, it’s an ethical requirement that safeguards both you and your clients from the hefty penalties and liabilities. Tax due diligence can be a complicated and requires a large deal of care. This involves reviewing client data to ensure that the information is accurate.

A thorough examination of tax records is crucial to a successful M&A transaction. It can aid a company negotiate an appropriate price and cut the cost of post-deal integration. It also helps identify compliance issues which could impact the deal structure or valuation.

For example the recent IRS ruling highlighted the importance of reviewing documentation to support entertainment expense claims. Rev. Rul. Rul.

It is also crucial to look into the status of unclaimed property compliance as well as other reporting requirements for domestic and foreign organizations. IRS and other tax authorities are increasingly looking into these areas. It is also imperative to analyze a company’s performance in the marketplace and observe trends that could affect financial performance metrics and valuation. For instance, if the petroleum retailer was operating at a high margin in the marketplace the performance metrics of its business could decrease when the market returns to normal pricing. Tax due diligence can assist in avoiding these unexpected surprises and give the buyer the assurance that the purchase is successful.

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