Tax Due Diligence in M&A Transactions

Due diligence is a crucial part of tax preparation. It’s not just a good practice; it’s also an ethical necessity to safeguard you and your client from costly penalties and liabilities. Tax due diligence is complicated and requires a large amount of diligence. This includes reviewing client information to ensure accuracy.

A thorough examination of vdr secrets tax records is crucial to a successful M&A deal. It can aid a business negotiate an equitable deal and cut down on post-deal integration costs. Furthermore, it can reveal compliance issues that could affect the structure of the deal and its valuation.

For example an recent IRS ruling stressed the importance of reviewing documents in support of entertainment expense claims. Rev. Rul. 80-266 provides that “a preparer does not satisfy the standard of due diligence simply by inspecting the organizer of the taxpayer and confirming that all the entries for income and expenses are accurately reported in taxpayer’s supporting material.”

It is also crucial to look into the unclaimed property compliance requirements and other reporting requirements for both domestic and foreign entities. These are areas that are under increasing scrutiny by the IRS and other tax authorities. It is also essential to assess a company’s position in the marketplace, noting trends that could affect the financial performance metrics and valuation. For instance, if the petroleum retailer was selling at inflated margins in the market, its performance metrics may fall when the market returns to normal pricing. Tax due diligence can help avoid these unexpected surprises and give the buyer the confidence that the purchase is going to succeed.