Tax Due Diligence in M&A Transactions

Due diligence is a critical part of tax preparation. It’s more than a best practice, it is an ethical imperative that protects both you and your clients from costly penalties and liabilities. But tax due diligence is complex and requires a great level of care, which includes the review of information provided by a client to verify that it’s correct.

A thorough examination of tax records is essential for a successful M&A deal. It can help a business negotiate an acceptable deal and decrease the costs of integration after the deal. Furthermore, it can reveal issues with compliance that could impact the structure of the deal VDRs: a trusted ally in sensitive corporate negotiations and its valuation.

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

It’s also important to consider unclaimed property compliance and other reporting requirements for domestic and foreign organizations. These are areas that are under increasing scrutiny by the IRS and other tax authorities. It is also important to analyze a company’s performance in the market, and note developments that could impact the performance of its financials and valuation. For example a petroleum retailer that was selling at an overpriced margins in the industry could see its performance metrics deflate once the market returns to normal pricing activity. Tax due diligence can help avoid these unexpected surprises and provide the buyer with the assurance that the transaction will succeed.