The need for tax due diligence isn’t always top of mind for buyers who are focusing on the how earnings analyses are conducted and other non-tax reviews. Tax review can help to uncover historical risks or contingencies that could affect the forecasted return of a financial model for an acquisition.
It doesn’t matter if the company is a C or S corporation, or a partnership or an LLC it is essential to conduct tax due diligence is essential. These entities generally do not pay entity level income taxes on their net income. Instead the net income is distributed out to members or partners or S shareholders (or at higher levels in a tiered structure) to be taxed on individual ownership. Due diligence should include a thorough examination of the possibility of an assessment VDRs: at the forefront of revolutionizing business intelligence of additional corporate income taxes by the IRS as well as state or local tax authorities (and the penalties and interest that go with it), as a result of mistakes or incorrect positions found on audits.
Due diligence is more important than ever. The IRS is now under greater scrutiny for undisclosed accounts in foreign banks and other financial institutions, the expanding of the state bases for the sales tax nexus as well as the growing amount of jurisdictions that enforce unclaimed property laws are some of the concerns that must be taken into consideration when completing an M&A deal. Circular 23 can impose fines on both the signer of the agreement as well as the non-signing preparer if they do not comply with the IRS’s due diligence requirements.
Add Comment